Let’s face it, insurance isn’t the sexiest topic out there, but it’s required when you purchase a home so let’s get into it. Homeowners insurance policies aren’t one size fits all so until you reach out to one of our recommended insurance partners to find the policy that works best for you, here are some quick points that may help shed some light on homeowner’s insurance.
What is a home warranty vs homeowners insurance?
A home warranty is purchased to cover the systems in your home, such as HVAC, or that less-than-snazzy washer and dryer that the sellers left behind. Usually, home warranties cover partial payment of repairs or replacement. They are an annual purchase, run about $550 and come with a service fee per visit.
Homeowners insurance, also known as hazard insurance, is required by your mortgage company to insure your home and belongings from sudden and accidental damages, and your finances from liability. This means good homeowners insurance covers that time your washing machine filled your finished basement with water for an entire weekend while you were at the beach and the fancy camera that went missing on your trip to London. The liability terms on your policy provide coverage if your dog bites someone or a pedestrian trips on your sidewalk.
Evan Ridington, of Holman Insurance Services, advises asking your agent “what your policy covers, how it covers, and what the liability coverage is”. Since every policy is customized for the homeowner and the property it covers he recommends you find someone that is local to your area, who understands important details that are common in your region. Hurricane insurance for example. Required in Florida, but here? Call to find out. Our partners love answering questions and will take your policy one step further than an online service that may seem cheaper, but certainly covers much less, and/or has much higher minimums, therefore costing you more.
There is one more insurance to mention when buying a home. Title insurance is also required by your mortgage lender. Unlike homeowner’s insurance which protects your physical assets, title insurance protects your ownership. It ensures that there are no defects in your chain of ownership and that you’re not buying a prior owner’s debts that may be attached or liens against your property. Title insurance is purchased once and paid for at closing and lasts the length your entire ownership whereas homeowner’s insurance is purchased annually. While the cost of title insurance is regulated by the state and based on your loan and down payment costs, the price of homeowner’s insurance varies by customization.
Are there different types of homeowners insurance?
There are different categories for renters, condos, homeowners, and even landlords. Although different, all of them are about taking care to read the fine print. Hank Ricci agency owner of Allstate Insurance in Levittown, PA, explains “There are state forms HO3, HO4, & HO6 (which is for condos) – inside these forms, you could have actual cash value settlements (bad) or replacement cost on dwelling and personal property (good) – It is important to see that replacement cost language on any of those possible HO chassis. If your home has a fire or suffers other damage, you want to be certain your replacement costs will allow you to rebuild your home to what it was.”
What is the cost of homeowners insurance?
When you hear “insurance” many of us will think about how pricey health and car insurance is. People are often surprised at the extent of what homeowners insurance will cover and how affordable it actually is. “There is more stability in the home market” Evan Ridington shares “This means that costs are pretty affordable. Add-ons that might be important to you, opting for sewer line coverage, for example, may only be a few additional bucks a month”.
Generally, the cost is based on factors such as the age of your home, style of construction, total estimated replacement cost of the dwelling, and your personal history of claims. Bundling your car and home policies is a way to keep your costs down, as well as added amenities like alarms and rubber roofs. Ask for suggestions on how to reduce costs when inquiring about homeowners insurance.
Do I go for the cheapest coverage or is this one of those times I should go big? Can I upgrade later?
First time home buyers are usually trying to stretch their cash on hand as far as possible but that doesn't mean you have to go with the bare minimum requirements. Hank Ricci warns about taking the risk of bare minimum coverage “You can always add protection later if you make improvements to the home, but I caution going in low, and upping it. Typically, starting at the appropriate policy level is not much more than you might save by skimping in the beginning.”
Brian McCollum, president of McCollum Insurance agrees “It is best to have a robust policy because you never know what is going to happen. However, you are not locked into a policy once it is active, you are able to make adjustments at any time.”
If I have an issue the minute after closing on my home, will insurance actually come through for me?
Yes! As soon as you purchase your homeowner’s insurance, it is active from that day. Brian McCollum explains “Say a heavy hail and wind storm came by and created a hole in the roof, that leak is new and the cost of repair will be covered”. Where it gets tricky he continues” is if it is damage that is due to maintenance and wear and tear, the roof is 15 years old and neglected by the previous owner. Then it’s not covered.”
Before you panic, know that is exactly why you have a good home inspection before you buy the home. You’ll know the age and condition of your home’s major components and systems before you buy.
What about sewer and waterline coverage in Philadelphia?
In the city of Philadelphia, the homeowner is responsible for the maintenance and repair of the sewer and water lines from the home to the main line. Philadelphia Energy Authority (PEA), the same folks that run the Solarize Philly program, have partnered with American Water Resources to offer citywide sewer and water line coverage. This supplemental insurance is independent of your homeowners insurance and costs a little under $8 a month. It offers 24/7 call support, unlimited protection, unlimited service calls, no deductibles and a 1 year warranty on all covered repairs. You sign up directly through AWR here.
To cover your bases even further, speak to your homeowners insurance agent and ask what additional coverage they advise. For example, if something happens within your home with your sewage and waterlines, the city program will not cover. Often our clients will opt for the city insurance as well as additional “back up” insurance offered through their homeowners insurance for a few bucks a month. Some agencies will offer a plan where the city program isn’t needed as it is covered within their offering. Be sure to understand clearly what is and isn’t covered so that you can have peace of mind if anything goes awry.
Final advice from our Insurance experts
Hank Ricci: “ Choose an insurance professional who understands the type of home you are buying. When protecting your largest asset, do it right from the beginning and you will never have any regrets.”
Brian McCollum: “Let your insurance provider know if you own jewelry or rare valuables like a collection of vintage guitars. You may have the option to purchase a special rider in your policy that for only a few extra dollars a month will protect those precious and sentimental assets.”
Evan Ridington: “Ask your insurance provider what additional incentives that they offer. You may find a discount via your educational institution such as Penn or Drexel, or through your employer. Additionally, there are often discounts if you have a security system like Guardian or ADT.”
We will sum it up by saying, the best thing you can do is to be referred to a local agent and have a serious and open conversation with them. We trust and respect all our recommended partners. It’s in their best interest for you to be happy, understand your coverage, and have a policy that covers your needs at a price you can afford.
Saving money for a downpayment and closing costs is the # 1 reason people are holding off on purchasing a home. PHG agent Rachel Shaw came up with a trusty list of some of her favorite homebuyer assistance grants and loan programs. With a little help, your dream of owning a home may not be as far off as you thought!