What kind of insurance do I need?

Obtaining the appropriate insurance for your home can bring peace of mind.  Some insurance decisions must be made prior to the loan closing.  Certain types of insurance are often required by the lender and will be included in the closing costs; other insurance is optional to the buyer.  Typically, property related insurance payments are managed through the escrow account.  There are three main types of insurance plans to consider when you purchase a home.

• Title insurance provides a protection from uncovered claims against the title of the property you are acquiring.
• Private mortgage insurance (PMI) protects the lender against default.
• Homeowners insurance packages several types of coverage aimed to protect you from damage or loss to your home.    

Title Insurance
Title insurance provides protection from financial loss due to claims made against the title of the property including legal defense of the title against those claims.  This insurance is usually provided after a title search is done to uncover any interests or liens on the property, in order to clear the title of any claims against it.  This type of insurance provides protection against past defects, not future faults. 

Title insurance is generally required by the lender, paid at closing and requires only a one-time fee to provide title insurance coverage on the property for the life of the loan.  The lender will require the amount of your policy to be equal to the purchase price of your home.  However, a lender’s title insurance policy only protects the lender against undiscovered title claims.  An owner’s title insurance policy will also protect the homeowner against these claims.

Private Mortgage Insurance
PMI is usually required when you are trying to get a mortgage with a low down payment (generally less than 20% of the sales price.)  This insurance is designed to protect the lender from the higher credit risk borrowers.  It also benefits the borrower, though, making possible a loan that may otherwise not have been available.  

Federal law now mandates that lenders automatically drop PMI when the loan-to-value ratio reaches 78%.  The borrower may request that the PMI be dropped when the LTV reaches 80% (or 75% if other criteria is met).

Homeowners Insurance
Homeowners insurance is designed to protect you from loss due to damage to your home or related property.  It is important to know exactly what is included in your policy.  Typically, homeowners insurance is a package policy that combines different types of coverage.  The most common of these are:

• Dwelling and personal property - Generally covers damage (as specifically delineated in the policy – often flood or earthquake may not be included) to the home and other structures such as a barn or shed and damage or theft of personal property such as furniture, clothing, personal belongings.
  
  
• Personal liability - According to the terms of the policy, personal liability coverage protects you against financial loss due to liability for bodily damage or property damage of another person

• Medical payments - Pays medical bills for people hurt while on your property (also may include harm caused off your property such as your dog biting someone)

• Additional living expenses - Pays living expenses is you must live away from home due to damage to your property

Other coverage such as renter’s insurance, specific damage policies (such as mold or earthquake) or credit life insurance are also available.  It is critical that you pay attention to the details of your policy so that you know what you are paying for before it is too late.

You need to make sure that the policy coverage and the dollar amount of the coverage is sufficient to your needs.  Also, realize that some insurance policies are designed to protect the homeowner and some to protect the lender.  As a homeowner you need to make sure that you are protected!

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