Homeowner's insurance

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.

Homeowner's 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 rebuilding your 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.

Standard Coverage.
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 are excluded.

Condo insurance.
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.

Disaster insurance.
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 that provide coverage for damage caused by sewer backup or sub-pump failure.
  Flood insurance is available only in communities that qualify for the National Flood 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 separate endorsement 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 insurance.
  • 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 coverage.

Title insurance.
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 sale price.