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December 12, 2020

Buying Home Owner’s Insurance – What You Need to Know

One of the essential steps all home buyers need to take is getting adequate home owner’s insurance before they close on their new house. It’s rare to find a mortgage lender who will let a sale go through unless the buyers have a plan in place. But as with most types of insurance, the thought of researching companies, getting quotes and making a final decision can be completely overwhelming. One of the reasons insurance companies retain clients for long periods of time once their products are in place is due to the process involved in getting the protection in the first place. That said, how can you make this critical requirement as hassle-free as possible? 

If you’re looking for new construction in the Savannah, GA area, one of the best ways to start is to use one or more of the handy web-based comparison sites designed especially for home insurance. Sites like Quote Wizard, Nerd Wallet, Lemonade and The Zebra can get you off to a quick start easily. Once you compare apples to apples between at least three companies, you can determine the high, average and lower cost plans available in your market. 

But remember – price isn’t the only consideration. Homeowner’s insurance policies differ greatly in what they cover - and more importantly – what they don’t cover. Different levels of coverage are available, so it’s important to purchase a plan that covers you adequately, but doesn’t loop you in with a higher-priced plan that offers more than you need. The value of a plan – the balance of price and coverage – is most important.

New construction is typically covered with one of three types of policies:

HO-2 – Broad-based coverage protecting against the following 16 perils:

  • Fire or lightning
  • Hail or windstorms
  • Explosions
  • Riots or civil commotion
  • Damage from aircrafts
  • Damage from vehicles
  • Smoke
  • Malicious mischief or vandalism
  • Theft
  • Volcanic eruptions
  • Falling objects
  • Weight of ice, snow, or sleet
  • Accidental discharge of water or steam
  • Sudden and accidental tearing apart, cracking, burning, or bulging of certain household systems
  • Freezing of household systems
  • Sudden and accidental damage from artificially generated electrical current

HO-3 – An expanded policy that protects against all perils except those specifically excluded by the policy.

HO-5 – Similar to an HO-3, but a premium policy with a higher level of protection afforded to personal property.

Once you decide which type of policy is best for you, make sure you understand how these terms work together to describe your coverage:

Deductible – The amount you must pay out of pocket before your insurance will pay anything toward your claim. Lower deductibles mean you’ll pay more in annual premiums.

Liability Coverage – Will pay medical or legal bills if someone is hurt on your property. This typically applies to negligence claims.

Personal Property – Otherwise known as the contents of you home, it means possessions such as furniture, electronics and clothing. 

Premium –  The price you pay for insurance, either annually, semi-annually or monthly.

Replacement Cost – Will pay the full cost of replacing your home or personal property, up to a certain dollar amount. Most policies offer replacement cost, but be sure the maximum amount will meet your needs.

Actual Cash Value – The current cash value, including depreciation - for personal property or your home. 

Sub-Limits – Home owner’s policies will include limits, and most have sub-limits, a further reduction of reimbursement. Here’s an example. The sub-limit on personal property for a $500,000 policy might be $250,000, or 50% of the coverage.

Riders – Specific policies you added to your overall insurance policy to cover specific items. Common uses of riders include costly antiques, jewelry and artwork. 

One of the best ways to pay your insurance premiums on your home is through your escrow account. Lenders prefer to pay your insurance premiums out of your escrow account, ensuring your insurance premiums are being paid and the property is well protected. Most lenders require one year of insurance premiums due at closing. Make sure your lender has a copy of your insurance policy and the essential funds to cover the first year's premium for closing.

Still have questions? The team at Ernest Homes is here to help you navigate the course ahead. We can also refer you to several top-notch lenders who will take the time to assess your needs and help you find the perfect answer to your insurance questions. Call us at 912-660-9673 today!

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