Things You Should Know About Home Insurance, Before Buying a Home or Condo

Watch on your mobile device >>

There is an endless amount of information available about the many aspects of buying a home, including the ins and outs of home insurance.  But who has time these days to sift through everything that’s out there?  To make it easier, we’ve put together a list of questions that are often asked for coastal and island regions, making it one step easier for you when you go to purchase insurance on your new property.

INSURANCE FOR SINGLE-FAMILY HOMES

What are the insurance amount requirements of the home I own?

You need to be able to recover the cost it would take for your property to be replaced.

Do I need to insure the amount of the loan, the amount I paid for the home or the replacement cost?

The cost to replace a home or property is the amount that should be insured.  Mortgage companies may try to get homeowners to insure the loan amount but they will waiver from that if there is replacement cost coverage on the policy.

How do I know what the replacement cost is?

Replacement cost is determined based on the square footage of the property, as well as other determinations made on a case-by-case basis.

INSURANCE FOR TWO-UNIT CONDOMINIUMS

How does home insurance work for a two-unit condominium?

Given there is a master insurance policy for the existing condo, the new buyer would assume insurance from the seller, sharing the cost of the master flood policy, fire policy and liability policy.  Individually, however, there should be a policy for each unit, that covers their own domain and usually entails the interior of their unit portion of the condominium.

WAITING PERIOD AFTER PURCHASE FOR INSURANCE COVERAGE

Is there a set waiting period before I can get insurance coverage on my new property?

Depending on the type of property and conditions of sale, the waiting period can vary. For purchases of single-family homes there is a 30-day waiting period unless the homeowner is closing on a federally funded loan. The same applies to two-unit homes.  Condominium owners have a 30-day waiting period unless there is an existing master policy in place, in which case there is no waiting period prior to coverage.

When does the waiting period start?

The waiting period begins from the day of the application.

HOME INSURANCE PREMIUM RATES

Are home insurance premium rates higher for coastal and/or island properties?

In general premiums are calculated by a few factors, however the main determining aspect is whether or not the home was built according to FEMA (Federal Emergency Management Agency) guidelines.  As a rule, all homes built after 1974 do comply with the federal government’s guidelines and those properties will see premiums that are less than those on older homes.  

Secondary owned properties have higher premiums than if it were the primary residence.  Also those homes owned by people with negative credit scores and ratings will also have a higher premium calculation.

FLOOD INSURANCE

What are the various options available for flood insurance?

The Federal Emergency Management Agency (FEMA) completely mandates all primary flood insurance coverage.  Rates, rules and regulations are all controlled and underwritten by FEMA but for property owners who want to extend their coverage beyond FEMA’s coverage, additional coverage for added premiums is available through private underwriters.   

How is the premium amount on flood insurance determined?

The main factor that determines the premium amount is elevation.  Rates are regulated using the home’s elevation certificate, taking into consideration how high above sea level the property is built.  Another aspect used to determine premium rates is ventilation in the home.  Note:  Proper venting may be installed, crawl space may be filled or other adjustments made based on assessments by the underwriter; all things that will impact the premium amount.

What is the typical flood insurance coverage provision?

The maximum coverage through FEMA is $250,000 for single-family homes, two or four-family units and condominiums while the maximum coverage amount for commercial properties is $500,000.  

ISLAND AND/OR COASTAL PROPERTIES

Given the potential volatile weather faced by properties housed on islands or on the coast, is home insurance difficult to obtain?

While all companies may not provide home insurance for such properties, there are many insurance underwriters that do provide coverage. It is merely a matter of the homeowner researching the right company for their needs.
~
Though this article covers a good deal of questions and clears up some myths that come up for home insurance, there are still going to be some nuances that remain unanswered.  The best solution remains getting in touch with your Realtor, tapping into their resources and having a sit down with a home insurance specialist that is on their list of preferred vendors/partners.