No one likes to think about a disaster occurring. Hopefully you’ll never need the insurance coverage you purchase. Homeowners insurance protects the lender against loss of its collateral (your home) and provides you with peace of mind. If there ever is a fire, a burglary or some other loss, the time and energy you devote today to shopping for an insurance policy will have been worth it.
Homeowners insurance (also known as hazard insurance) will be required by your lender unless you’re buying into a condominium complex or other common interest development that has hazard insurance as a part of the homeowners association’s responsibility (see more information below regarding condo owners policies).
Lenders usually require coverage for either the loan amount or "replacement value" of the property, whichever is less. In most cases, replacement value is less expensive because land constitutes a large part of a home’s value, and you don’t insure the value of the land. You’ll need to have a one-year hazard insurance policy into escrow prior to closing. The policy can be prepaid or paid with your other closing costs through escrow.
Most homeowners insurance policies come with automatic coverage for contents (personal possessions) and liability. Look carefully at coverage limits and exclusions, and discuss with your insurance agent whether to increase your coverage or attach a "floater" or "rider" for specific valuables.
When shopping for insurance, it’s wise to compare not only price and coverage, but also the rating, track record, reputation and complaint history of the company. Since your home is likely your most valuable asset, opting for the lowest quote without some research may not result in a wise decision.
The California Department of Insurance maintains information on insurance carriers, including records of complaints and complaint resolution.
When comparing policies, ask questions. Make sure the quotes you are comparing are for the same type of coverage, including the deductible (what you would pay toward a loss before the insurance company would pay).
Ask about the cost benefit of increasing the deductible. This could reduce your premium (cost of the policy). Another important question to ask is about an "inflation guard" clause to help keep your policy in line with increasing building costs.
Also ask about discounts. Often a company will offer a significant discount if it also insures your automobile. There can be discounts for safety items like a security system.
Even though condo owners may not be required by a lender to have hazard insurance, it’s wise to have a condo owners policy. This type of policy is designed to provide coverage for the interior of your unit (flooring, cabinetry, etc.), plus contents and personal liability.
Following the 1994 Northridge Earthquake, many insurance companies ceased issuing earthquake insurance. As a result, the CEA (California Earthquake Authority) was founded. The CEA has fairly basic coverage with many exclusions and a hefty deductible. If you want earthquake coverage, ask your insurance agent about the CEA coverage as compared to earthquake coverage which can be obtained from private carriers.
Discuss all your options with your insurance agent.
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