What are some things that a buyer needs to consider when selecting fire/homeowner’s insurance for a home they are purchasing?


Homeowner’s Insurance is an important part of the escrow closing.  Buyers purchasing homes with financing (new loan from a Mortgage Company), will not be able to fund and close escrow without insurance that meets their new lender’s requirements.  Cash buyers will want to protect their investment by making sure that insurance is in place, at the time escrow closes.

I normally recommend that buyers get a couple of quotes to compare rates, and when they make their selection, provide the agent with their Escrow Officer’s contact, as well as giving the Insurance Agent’s contact information to escrow.  If you are given a “quote” or “binder” number, provide it to your escrow officer as well.

Here are some things to consider:

1)     Your lender is likely to want evidence of insurance coverage very early in the escrow process, so selecting insurance coverage is one of the first things a buyer should work on when purchasing a home.

2)     Insurance companies will look at many different things when determining if they will in fact insure the property, and to help determine the premium amount.  This may include prior claims on the property, the buyer’s own credit history, the proximity of the property to open brush areas, and the type of construction (most importantly, the roof).  Don’t assume that your existing insurance company will write the insurance, without speaking to you first.  Many insurance companies require that the buyer complete and sign an application before they will write an insurance policy.

3)     Lenders may require a minimum amount of coverage.  Most lenders require “replacement cost guarantee”, which means that the insurance company is stating that the coverage is adequate to replace the structure in the case of a loss.  Some lenders go a bit further, and determine the MINIMUM amount of coverage that they will accept, regardless of the “replacement cost guarantee”.

4)     Lenders may set a maximum deductible.  When you are shopping to compare insurance premium rates, one of your options may be that if you select a higher deductible, the annual premium may be lower.  Keep in mind, however, most Mortgage Companies will NOT allow a deductible higher than $1,000.00, and some even lower than that.

5)     If the property is going to be used as a rental, your lender may require additional “rent loss” coverage.

6)     If the property is an attached condominium unit with a Homeowner’s Association (HOA) the HOA is likely to have coverage for the structure itself, but not necessarily for the interior of the unit and/or your belongings.  You will need what we call “walls in” insurance in many cases.

An experienced, licensed insurance agent will be your best source for information on what type of coverage is appropriate for you needs, just keep in mind your lender may have specific requirements, and talk to your insurance right away when escrow opens.

Cynthia Moller