Homeowner’s Insurance

Every home or condo you buy needs to be covered by insurance in case of fire, tornado, etc. It is there to protect you from a major loss of your investment. There are 3 parts to most policies: (1) The building itself; (2) the contents or furnishings of the property; and (3) both on and off-premise liability. Extra coverages are available (furs, computers, fine art, etc.) and all policies will have limits and certain exclusions to the coverage. It is the buyer’s responsibility to obtain insurance coverage and you will get that set up well in advance of the closing.

Let’s look at each type of insurance for a moment.  Coverage for the buildings covers the cost of repairing or re-building a house or garage if there were a fire, for instance.  The amount of coverage is worked out between you and the insurance broker, but your lender will require that it be insured for at least the amount of the loan.  Under-insuring has it’s obvious disadvantages, but it also has a major hidden disadvantage.  If you under-insure (let’s say by 40%) you may actually trigger a “co-insurance” clause that would mean for ANY loss you will pick up 40% of the loss and the insurance company will only pick up 60% of it.  If you want to lower your premiums, it is generally far wiser to increase your deductible, but be sure to check with your insurance broker and the lender on that item as well.

Content insurance covers your furniture, your clothes, the pictures on the wall etc. in the event of a covered loss.  The amount of coverage is generally a percentage of the amount of insurance carried on the building.

Condominiums, because you are buying a piece of air, present a unique problem.  The homeowner’s association or condo association will have a master property insurance policy for the entire project.  Usually, it covers from the outside walls all the way to the paint on the wall inside your unit.  It will not cover the paint or wallpaper on the wall, the carpet, cabinets, clothes, or any furniture.  Consequently, you will need to purchase a “condo” policy for those items.  Townhomes are different from condominiums in that you actually get the piece of land directly under your unit and oftentimes a little front and backyard. Every project is different, but more often than not you will need to obtain building, content, and liability insurance just like a regular house.

The third type of insurance is called liability coverage. It is necessary on a condo policy or a regular house policy.   This type of coverage is there to protect you from both from  off and on-premises liability.  Let me explain.  If you own a home and go out golfing and your golf ball hits someone in  the head, your homeowner’s liability policy covers that via the “off premise” liability portion of your policy.  Somewhat similarly, if someone comes over for dinner at your home or condo and they stumble down the stairs into your basement, your “on premise” liability covers that.  Without your own condo insurance, you would not be covered as the association’s policy does not cover on or off premise liability.  Finally, to avoid arguments between your condo insurance carrier and the insurance carrier of the association, I recommend you obtain your insurance policy from the same company and carrier  the association used.  If there ever is a loss, at least you will not get caught up in any insurance company “blame games” where one carrier says that it is the other carriers’ responsibility and vice versa.