Homeowner's insurance is an essential step in
securing a loan - lenders demand that buyers purchase it to cover the cost of the
mortgage. This amount does not include the equity on your home, so you will probably
want more coverage than your lender requires to protect your investment.
insurance in general.
When you buy a new home, your insurance agent will determine how much and
what kind of insurance you'll need. He will find the approximate cost of
home by the Construction Price Index (CPI) - a table that uses the unit count figure,
housing category, zip code and the cost of building materials
and labor in your area to
calculate the cost of replacing your home. You may need a $250,000 policy on your home,
according to the CPI, even though you paid $400,000. The CPI does not factor in the
neighborhood, the lot, or the outdoor swimming pool, all of which you'll still have even
if your house is destroyed.
The HO-3 (homeowner' policy), combines protection against both property
loss and personal liability, with 100 percent of replacement cost for your home and 50
percent of that figure for the actual cash value of its contents.
The standard policy is automatically adjusted for changes in the CPI, so you are
actually insured for the amount listed on the CPI.
On the standard HO-3 policies damages caused by arson, war, flooding and earthquake
Nearly everything about insuring a condominium is more complex than covering a
single-family house. As a condo owner you must have at least two different kinds of
insurance - one policy for the building and another for your personal property.
Before buying the condo insurance, find out from your condo association what you
are responsible for and what the building already covers.
The first policy, to reimburse for structural damage, is purchased by the
condominium association and covers the common areas shared by all owners.
The second policy, an HO-6, protects the condo interior and personal property
against loss to fire, lightning, windstorm or theft. You should take an inventory of your
possessions to decide how much personal property insurance you will require.
Even though you may have an excellent homeowner's insurance policy,
damages caused by flood or earthquake are not covered.
- Special flood insurance.
Insurance companies make a distinction between types of water damage -
surface water, flood water, ground water and sewage water. Flood damage is not covered by
any standard homeowner's insurance policy.
You can supplement your regular insurance with extra cost endorsements
coverage for damage caused by sewer backup or sub-pump failure.
Flood insurance is available only in communities that qualify for the National
Insurance Program. Those policies provide maximum flood insurance coverage of $185,000 for
the structure and $60,000 for the contents of a home. Coverage is available for almost any
building and its contents.
Only flood water is covered on these policies. Ground water needs a
on your standard policy.
- Earthquake insurance.
If the risk of earthquakes in your area is relatively low you probably
don't need it. But if you decide to buy it here's what you should know about earthquake
- The deductibles are often very high (5-10
percent of the insured value) but the insurance cost is relatively low - in non-quake
areas, coverage for a $400,000 house might be around $300 per year.
- Wood frame is better and policy cost on such
houses is much lower than on brick constructions.
- Coverage for quake damage
usually can be added
to your present policy as a special rider. Not all insurance companies will offer
earthquake insurance. However, in California, all insurance agencies must offer earthquake
This insurance is protecting an owner of a property against any
unforeseen claims on the title of that property. This insurance premium is paid in one lump-sum
premium when you buy the property and usually costs about one-half of one percent of the