Home insurance protects against the risk of damage or loss of property due to unforeseen events. Today’s insurance policies can be customized to meet different homeowners’ needs, but every individual carrying a mortgage must purchase basic insurance for the structure of their home.
This basic insurance, known as hazard insurance, generally covers only the unpaid principal balance on your mortgage. As a homeowner, it’s good idea to opt for a broader home insurance policy that covers the entire value of the home, including your equity and personal belongings.
Most mortgage lenders set guidelines that require the borrower to obtain hazard insurance for the property. This type of insurance serves to protect against damage to the structure of your home caused by natural events (such as a fire). The value of the hazard insurance policy must cover the balance you owe on the mortgage. Your mortgage company will also want to be named as a payee on the hazard insurance policy in the event that a loss does occur. If you do not meet the minimum requirements set by your lender when purchasing insurance for your home, they will implement a “force-placed” policy which is typically more expensive.
To adequately protect a home and its contents from loss, most homeowners purchase homeowners insurance. A homeowners insurance policy covers the minimum hazard insurance required by a mortgage lender and more. In addition to physical damage from fires, homeowners insurance covers liability and loss of personal contents. Loss events include listed natural causes, theft or accidents in the home. A standard homeowners insurance policy also covers living expenses in the event that a disaster strikes and you are unable to remain in your home.
Additional Home-Related Insurance
Sometimes you may need extra insurance that goes above and beyond when compared to basic homeowners and hazard provisions. Homes located in a flood plain may be required to purchase additional flood insurance through the National Flood Insurance Program (NFIP). Also, those living in areas prone to earthquakes may need to purchase extra insurance for their residence. These risks are beyond the scope of a typical homeowners policy, but in communities where the likelihood of these events is higher, extra insurance is essential to adequately covering risk. You may also need to purchase separate insurance for high-value items in your home, such as jewelry, art, or antiques as replacement values for these items are limited by a typical homeowners insurance policy.
With so many insurance options available today, homeowners can easily find a policy to fit their budget and meet their unique needs. Before settling on a particular policy, it’s a good idea to speak to several different insurance companies and obtain price quotes.
If you have any questions, feel free to reach out to BrightPath Mortgage.
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