The protection of a home should be every homebuyers priority. As such, getting insurance for your home isn’t a luxury; it’s a necessity. To start with, insurance protects your home and possessions against damage or theft. Moreover, mortgage lenders require borrowers to have insurance coverage for the full or fair value of a property. When we talk about insurance for your home, what kind of insurance are we talking about? There are actually a few types of insurance you might need when you buy a home. Check out the different types of insurance every homeowner needs.
5 types of insurance every homeowner needs
1. Homeowners insurance
As a homeowner, you want to protect your financial investment. Homeowners insurance is designed to pay for damages to your home and your belongings. It also helps protect you from financial liability if someone is injured on your property. If you have a mortgage loan, the mortgage holder (e.g., the bank) is also made an insured on the policy to ensure its investment is protected in the event of serious or total damage.
2. Private mortgage insurance
Private mortgage insurance (PMI) is a type of insurance that may be required by your mortgage lender if your down payment is less than 20 per cent of your home’s purchase price. PMI protects the lender against losses if you default on your mortgage. You may pay PMI upfront at closing, or the premium may be added to your monthly payment. Or you may be required to pay both an upfront and monthly premium. It depends on the lender and type of loan. The insurance does not prevent you from facing foreclosure or experiencing a decrease in your credit score if you get behind on mortgage payments.
3. Title insurance
So, what exactly is title insurance? Simply put, title insurance is a form of indemnity insurance that protects lenders and homebuyers from financial loss sustained from defects in a title to a property. The most common type of title insurance is lender’s title insurance. Lenders require title insurance to protect their investment in case there are any issues with the title after closing. Owner’s title insurance is the other type of title insurance. The seller often pays for this type of title insurance to protect the buyer’s equity in the property. It is usually good practice to consult with an attorney so they can review the property’s history and advise if they foresee any issues down the road.
4. Flood insurance
Do you intend to buy a property in an area that is prone to flooding? Your mortgage lender will most likely require you to obtain flood insurance. Flood insurance covers a dwelling for losses sustained by water damage specifically due to flooding. Homeowner’s insurance typically doesn’t cover natural occurrences such as flooding. Natural events such as flooding require supplemental insurance to cover any damage or destruction.
5. Legal insurance
Real estate transactions can sometimes come with so many legal and financial challenges. Legal insurance gives you access to professionals who can help you avoid legal problems and advise you on how to resolve your legal issues.
