Shopping for Homeowners Insurance: 6 Things to Consider Before Closing Day
Buying a house is one the most exciting purchases you will ever make. Once you get pre-approved for a mortgage loan, find a house and have your offer accepted, you’re well on your way to sealing the deal on your dream home. But, before the house keys can be handed over, there are a few more to-do’s you’ll need to complete before closing day—including shopping for homeowners insurance.
Shopping for homeowners insurance is a critical part of the home buying process. When you apply for a mortgage, your lender will require you to have homeowners insurance. Just like you are required to have an appraisal and submit various financial documents, proof of homeowners insurance is also required for closing.
Because the home buying process is complex and has a lot of moving parts, it’s best to start shopping for homeowners insurance early in the mortgage process. In fact, you should start as soon as your mortgage loan application has been approved. This will give you adequate time to consult with an insurance broker, compare policies and process the necessary documentation. If you wait until the last minute to purchase homeowners insurance, it could potentially delay your closing date.
Not sure where to start? I recently met with Matthew Wolf, partner of Wolf-Chandler Agency, to talk about what homebuyers need to know about buying homeowners insurance.
Here are six things you should consider before you start shopping for homeowners insurance:
- Finding an insurance company. When looking for an insurance company to work with, ask your friends and family for recommendations, or ask your mortgage lender for a referral. They will be able to put you in touch with a reputable insurance broker who can help you choose the proper coverage for your needs and reduce the amount of time it takes to compare policies by shopping several different insurance companies at the same time.
- Information you’ll need to provide. Be prepared to have the following information ready to supply your insurance broker: real estate listing, appraisal and, if applicable, copies of your existing homeowners insurance policy. Brokers will use this information to help you choose a policy that fits your needs and shop for the best rates.
- Shopping for coverage. This is arguably the most important part of shopping for homeowners insurance. Because not all insurance policies are the same, it’s important to consult with your broker to determine which policy offers the best coverage based on your needs. Take time to review what’s included (and excluded) from each policy, and ask your broker to explain what other coverage options are available.
- Understanding market value vs. replacement value. When comparing coverage, don’t just look at price. Make sure you’re adequately covered in case of damage or loss. Not every insurance policy will promise to replace or rebuild your home in the event of significant damage or loss. For this reason, it’s important to understand the difference between market value and replacement value. If you insure your home at replacement value, the insurance company will pay the full cost of replacing your property (up to a certain amount). If you insure your home at market value, the policy will only cover the current cash value of your home.
- Choosing your deductible. When considering how much you want to pay for homeowners insurance, think about what deductible you’re willing to pay. This is the amount of money you must pay out of pocket before your insurance will cover costs. The higher your deductible is, the lower your premium will be. Keep in mind that deductible limits are often determined by your loan type and amount, so be sure to consult with your loan officer and insurance broker before making a decision.
- Preparing for closing. Before your scheduled closing date, connect your insurance broker with your mortgage lender. They will be able to coordinate many of the remaining details for you and ensure the necessary documentation is prepared for closing day. As your closing date approaches, have your insurance broker send you and your lender a copy of your insurance policy, particularly your declaration page. This is one of the items that is required at closing. You may also be required to pay for one year of homeowners insurance in advance, which can be set up in an escrow account prior to closing.
While this is not a comprehensive overview of the homeowners insurance process, it is a helpful guide to get you started on the right path. If you have any questions about the information discussed in this post, leave a comment below. We’d be happy to provide you with an answer.