Today I would like to tell you about home insurance and lessons that I have learned when I purchased my home.
I bought a new house just a few weeks ago, thanks to how a 39 yr old makes money online, I tried it and TADA! I have another house.
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I bought a new house just a few weeks ago, thanks to how a 39 yr old makes money online, I tried it and TADA! I have another house.
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I wish my real estate agent would have told me everything I learned in the last few days, but maybe he didn't know it.
I found out that there are 3 types of insurance coverage to buy for a home at the time of purchase, and I will explain them here so I can help others to not get the wrong coverage.
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1- "Full coverage insurance" or "Replacement cost guarantee" -
This insurance is the best because if anything happens to your home, the insurance provider will fix it. This does not mean that your provider will replace your water heater if it bursts, but they will cover damage from the water. This coverage increases with time, hence the property value increases a bit every year and it costs more to make repairs in case of damage to the structure. This is usually the coverage you want to have and it does make your monthly payments increase over time.
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This insurance is the best because if anything happens to your home, the insurance provider will fix it. This does not mean that your provider will replace your water heater if it bursts, but they will cover damage from the water. This coverage increases with time, hence the property value increases a bit every year and it costs more to make repairs in case of damage to the structure. This is usually the coverage you want to have and it does make your monthly payments increase over time.
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2- "Loan cost"
This one only covers the property that is equal to the value of the loan.
Let me explain what the above means in practical terms: If you own a home that is worth $100,000 dollars, but you only owe $20,000 dollars on the loan, this policy will only cover the value of the loan (which is what the lender or bank wants from you) but if your property burns down, this policy will only replace $20,000 dollars worth of property, hence you will live in the garage. Most lender don't like for you to have such policies because there is no real incentive to continue to pay the loan in case of total loss. Some people choose this type of insurance because the insurance payments decrease as the value of the loan decreases. But again, this is not recommendable and the lender can and most likely will demand that you have replacement cost insurance on the property or they will (lender place it) for you. NOTE: For a layman explanation of lender placed insurance see bellow.
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This one only covers the property that is equal to the value of the loan.
Let me explain what the above means in practical terms: If you own a home that is worth $100,000 dollars, but you only owe $20,000 dollars on the loan, this policy will only cover the value of the loan (which is what the lender or bank wants from you) but if your property burns down, this policy will only replace $20,000 dollars worth of property, hence you will live in the garage. Most lender don't like for you to have such policies because there is no real incentive to continue to pay the loan in case of total loss. Some people choose this type of insurance because the insurance payments decrease as the value of the loan decreases. But again, this is not recommendable and the lender can and most likely will demand that you have replacement cost insurance on the property or they will (lender place it) for you. NOTE: For a layman explanation of lender placed insurance see bellow.
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3- "Lender placed insurance"
Policy purchased by the lender (bank) for the cost of the loan, again very similar to number 2 above except that this policy is sometimes up to 3 times as much as any policy you can purchase on your own. DON'T let this policy be placed on your property EVER. The reason for this policy to be put into place by the bank are a few, such as you lack property coverage of your own policy, or you can't find an insurance company to cover the property because of it's poor conditions, or you simply don't want to buy your own policy. Either way, you will notice this policy on your property once your monthly payments increase due to its cost.
Policy purchased by the lender (bank) for the cost of the loan, again very similar to number 2 above except that this policy is sometimes up to 3 times as much as any policy you can purchase on your own. DON'T let this policy be placed on your property EVER. The reason for this policy to be put into place by the bank are a few, such as you lack property coverage of your own policy, or you can't find an insurance company to cover the property because of it's poor conditions, or you simply don't want to buy your own policy. Either way, you will notice this policy on your property once your monthly payments increase due to its cost.
More explanation of number 3.
Lender placed insurance can also be placed by the (lender) if you live in for example in a community with an association and is within a flood zone, but the association does not participate in the national flood insurance program.
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Other insurance policies: Now there is a policy called "Dwelling insurance" which is a policy a landlord would buy for his rental property, hence a landlord cannot insure the contents of the renter.
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Other insurance policies: Now there is a policy called "Dwelling insurance" which is a policy a landlord would buy for his rental property, hence a landlord cannot insure the contents of the renter.
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