When it comes to homeowners insurance, you may not have a choice in whether or not you’ll need to buy it. If you own less than 20% equity in your home, your lender most likely will require homeowners insurance (sometimes called “hazard insurance”) to protect their investment with you. As a rule of thumb, you should have enough homeowners insurance to cover a complete rebuild of your house, replace all of your belongings, and cover all of your combined assets.
There are no state-mandated requirements for homeowners coverage (as there are for auto insurance in most states), and a mortgage lender may require you to insure for only 80 percent of the replacement value of your home. But being underinsured could leave you on the hook for a significant sum, especially if you ever need to completely rebuild.
Your lender may also require a “mortgagee clause,” which creates a contract between your insurance company and your lender so the lender would be paid in the event of a loss or claim made on the property. In some cases, this additional stipulation could ensure payment to the lender in the event you are responsible for the damage and are dropped from your policy.
What’s Typically Covered
A standard homeowners insurance policy insures your house (the structure) and your belongings should you experience a destructive event, such as a fire. In addition, homeowners insurance policies are generally "package policies." This means that the coverage includes not only damage to your property, but also your liability for any injuries and property damage to others caused by you or members of your family (including your household pets). It should also include “loss of use” coverage, which pays a set amount per day for you to live outside your home during construction.
Insurance for condominiums and co-op apartments generally covers your belongings, liability and certain parts of the interior structure as defined in the by-laws or proprietary lease. Renters insurance provides personal property and liability protections to those who don't own their home.
All forms of home insurance also provide additional living expenses (ALE) coverage for the extra costs of living away from home if it is uninhabitable due to damage from an insured disaster.
What’s Not Covered
While homeowners insurance covers the cost of many types of disaster-related damage, you may be surprised about what’s not covered by these policies. For example, if a disaster or accident happens because of poor home maintenance (such as water damage from an old leaky water heater) it would generally be the homeowners' responsibility to pay for the repair or replacement and, therefore, it would not be covered by insurance.
Plus, depending on where you live, there are other types of insurance you should be aware of that you may need in addition to your general policy. This includes insurance for:
Hurricanes or windstorms. You may or may not be required to add on this supplemental coverage. If you get a hurricane policy, be sure to check whether or not it covers damage from wind, flooding or both.
Floods. Not everyone needs flood insurance, but your lender may require it if you live in a high-risk area.
Earthquakes. Standard policies typically don’t cover damage from an earthquake, so if you live near a fault line or in an area with widespread oil drilling, such as in some parts of Oklahoma, you should consider a separate policy for earthquake coverage (these are usually available from the same agents that carry general homeowners insurance policies).
You can add other endorsements to your basic homeowners insurance policy depending on your lender’s requirements and your own preferences. These could cover water backup and sump pump overflow; personal injury; other structures (such as for sheds or a detached garage); an umbrella rider (increases your liability coverage); or service line coverage (for any underground pipes on your property). Of course, options, add-ons, and separate coverages will increase the premium.
How to Buy Insurance
If you’re shopping around for homeowners insurance, you’ll want to get quotes from a few independent agents. Most sell policies from several insurance companies and will be able to match your needs accordingly. You can start by searching for local agents using a site like Trusted Choice, which is affiliated with numerous such companies. Insure.com, NetQuote, and SelectQuote are also good places to look for coverage quotes.
Consumer Reports publishes ratings of insurers based on surveys of their membership. However, some of the companies they recommend for members of the military use their own agents, so you would have to apply directly with each of them to get quotes.
Also, some state insurance departments publish rate comparisons. Members with property in Florida, for instance, can refer to the Florida Office of Insurance Regulation website for guidance. Or if your property is in California, try visiting the California Department of Insurance website.
We’re Here to Help
If you’re not certain about whether or not it’s the right time for you to purchase a home, or refinance an existing mortgage, please contact AAFMAA Mortgage Services LLC (AMS) online today, or give us a call at (877) 387-6856. One of our Military Mortgage Advisors, who are licensed Mortgage Loan Originators, will provide you with an honest and fair comparison of your mortgage options, including a wide range of low-rate and low-cost mortgages designed to meet your needs.
Ensuring existing and prospective AAFMAA Members obtain the best mortgage possible is our mission. Get your free mortgage assessment today!