Choosing Insurance for Your New Home
By Mark Nash
- Insurance obligations for condos
- Types of coverage available
- Insuring homes against flooding
Disaster strikes when we least expect it, and having homeowner’s insurance gives us peace of mind from many forms of disasters — but not all. You can add additional coverage through broader policies and federal flood insurance. Most mortgage lenders require that you purchase coverage before closing or entering into escrow on a property.
Some lenders, however, don’t demand insurance on condominiums. But the condo association may require you to insure the interior of your unit (including your possessions), while the condo association is required by state law to insure the exterior of the building and all common areas. State insurance laws vary on coverage and limits, so ask an experienced insurance agent in your state about specific laws. It’s wise to get a feel for insurance rates in areas with above-normal incidences of natural disasters, including earthquakes and tornadoes. In some areas, coverage may not be available at affordable rates, if at all, or only through a state fund, which offers only limited coverage.
The types of policies vary, according to what’s covered:
Basic coverage: Includes vandalism, theft, explosions, fire, lightning, windstorms, hail, window, glass breakage, and damage from vehicles, aircraft and smoke.
Broad coverage: Includes damage from ice, snow, sleet or falling objects; bursting or freezing of pipes; heating or air-conditioning systems and appliances; electrical malfunction to electrical systems and appliances; and structural collapse.
Liability coverage: Coverage for a loss sustained inside a condo unit or on a single-family home property — for example, a guest slipping and falling in a bathtub and someone falling on an icy sidewalk.
Replacement costs insurance: Covers the cost of replacing a structure but not the land. Look for a guarantee of 80 percent of full replacement costs.
Deductible: The amount of loss expenses you must pay before insurance payments kick in.
Actual cash value: Replacement costs minus depreciation.
Protection against flooding
Do you live in a flood plain? Then you better have insurance. Most federally sponsored home loans require you to obtain flood insurance if you’re purchasing property in a flood plain. Your mortgage lender will receive a flood certification on your property during the application process, and if it’s discovered that your home is in a flood plain, you will need to purchase insurance.
The Federal Emergency Management Agency (FEMA) operates the National Flood Insurance Program, which offers coverage to homeowners in participating communities. FEMA categorizes flood zones according to how likely they are to experience flooding. Areas rated an “A” are at the highest risk, and all mortgage lenders offering a loan in an A flood zone will require the borrower to obtain flood insurance. Locales labeled B, C, D, V and X carry lower risks and the possibility that mandatory insurance may not be needed.
Keep in mind, however, that lower risk doesn’t mean that an area won’t experience severe flooding. Evolving weather patterns can affect areas that historically haven’t had predictable flood patterns; these areas may also lack an extensive flood-control infrastructure. Your home can also flood from backed-up sewer systems that are overwhelmed by severe storms.
Rates for insurance policies vary from $200 to $700 a year, based on your flood-risk level. Policies restrict coverage amounts to $250,000 for structures and $100,000 in personal property.
Next article: Time to Move Into Your New Home >>