No one would drive a car without insurance, so it figures that no homeowner should be without insurance. The essential idea behind various forms of property and real estate insurance is to protect owners in the event of catastrophe. If something goes wrong, insurance can be the bargain of a lifetime.
There are various forms of insurance associated with home ownership, including these major types:
Purchased with a one-time fee at closing, title insurance protects owners in the event that title to the property is found to be invalid. Coverage includes "lenders" policies, which protect buyers up to the mortgage value of the property, and "owners" coverage, which protects owners up to the purchase price. Title insurance can prevent title issues from affecting who has true ownership of a property.
Provides fire, theft, and liability coverage. Homeowners' policies are required by lenders and often cover personal property like jewelry, furniture, and home office equipment. Many providers offer discounts for bundling auto and homeowners policies together.
Generally required in high-risk flood-prone areas, this insurance is issued by the federal government. It provides coverage up to $250,000 for a single-family home and $100,000 for its contents. Properties near rivers or bodies of water, and even some farther away, may require flood insurance.
With new homes, buyers want assurance that if something goes wrong after completion the builder will be there to make repairs. But what if the builder refuses to do the work or goes out of business? Home warranties bought from third parties by home builders are generally designed to provide several forms of protection: workmanship for the first year, mechanical problems such as plumbing and wiring for the first two years, and structural defects for up to 10 years.
Home warranties for existing homes are typically one-year service agreements and can be purchased by sellers or buyers. In the event of a covered defect or breakdown, the warranty firm will step in and make the repair or cover its cost.
Insurance policies and warranties have limitations and individual programs have different levels of coverage, deductibles and costs. For details, ask your broker, insurance brokers and home builders about them.
The time to have insurance and warranty coverage is at closing, so speak with a broker or insurance agent prior to closing. Be sure to ask about limitations, costs, deductibles, and "endorsements" (optional additional coverage).