Homeownership has long been touted as part of the American Dream and that is why millions of people continue to enter the real estate market. While some consumers may opt to live in large homes, others may choose a more simple life of being a condominium dweller. Regardless of the living arrangements they choose, insurance coverage is an essential safety net to protect those assets.
Insurance protection has been around since the advance of human civilization. Since the advent of a currency system, consumers have been able to purchase a form of protection that can help make them financially whole if specific losses have occurred. The practice of distributing financial risk dates back to Chinese (3rd millennia BC) and Babylonian (2nd millennia BC) traders. Based on these initial risk management systems, homeowners have several levels of insurance protections they may opt to choose from.
Mortgage Protection Insurance
Buying a first home is an incredibly exciting (albeit expensive) rite of passage for anyone. When purchasing a home, consumers need to compare numbers to see if buying or renting is a smarter move. Aside from monthly expenses of mortgage payments, homebuyers will need to save a down payment and depending on what percentage of investment a homebuyer has, mortgage insurance may be required.
MortgageMarvel.com defines mortgage insurance as "Insurance provided by a private company to protect the mortgage lender against losses that might be incurred if a loan defaults. The borrower usually pays the cost of the insurance and is most often required if the loan amount is more than 80% of the home's value. Sometimes referred to as private mortgage insurance."
Private lenders generally require homeowners to buy mortgage insurance based on loan to value ratio, type of loan, and amount of coverage required by the lender. Typically, buyers with less than a 20 percent down payment are normally required to purchase mortgage insurance, (AKA private mortgage insurance or PMI). The premiums for the PMI can be incorporated into monthly mortgage premium payments.
Homeowner's Insurance
For most people, a home purchase is the largest expense they will make during their lifetime. Once that possession is acquired, it then will be loaded with material possessions and personal touches and that is where homeowner's insurance will be of value. Unlike PMI, this type of insurance protection benefits the homeowner if a scenario occurs that requires a benefactor to be made financially whole. This type of financial protection will kick in if a property is damaged by fire, windstorm, vandalism or burglary.
The laws surrounding homeowner's insurance protection varies from state to state and that is why policy owners need to know exactly what is in their policy to ensure maximum protection. Those with homeowners insurance may want to take out additional riders for more thorough coverage. A rider is an additional form attached to a standard insurance policy to alter the boilerplate coverage and can be purchased with additional money.
For example, while most homeowner's insurance policies will provide some type of compensation for jewelry theft of loss, it is generally one lump sum with a low cap. That is why an additional jewelry rider may be required to cover high-value pieces such as engagement rings and family heirlooms. Flood insurance and earthquake insurance are offered in the form of riders to many conventional insurance policies and consumers need to evaluate the need for that protection on a case-to-case basis.
Aside from material possessions, a properly established homeowner's insurance will include liability insurance. It is this level of protection that can provide financial compensation to another party caused by property owner's negligence and resulting in bodily injury.
While homeowner's insurance typically refers to a policy covering single-family detached homes, there are policies for all types of dwellings and living situations. Consumers can get condominium, cooperative and even renter's insurance.
Title Insurance
Title insurance is a level of protection ensuring that a property is indeed in the hands of the rightful and legal owner. This type of insurance can protect both lenders and property owners against financial loss that may occur due to disputes over the ownership of a property. Additionally, this level of security can protect all parties in cases where mistakes in the title that were not unearthed during a search of the property's public record. This type of coverage can be extremely beneficial for those who buy foreclosed properties or prefer to buy their homes during auctions.
