If you are getting a mortgage to secure financing for your home, one of the requirements will be that you need to have homeowners insurance. If you're completely new to home insurance, you'll likely want to know the following things about it.
Why Is Home Insurance Required With A Mortgage?
It is incredibly common for mortgage lenders to require that you have the proper amount of home insurance to repair or rebuild the home in a total loss scenario. If you live in areas where you are prone to flooding or earthquakes, you will likely be required to purchase insurance to cover those natural disasters as well. This is because the insurance company wants to make sure that the property is protected as long as it is technically in their possession.
For example, if you did lose the entire home due to a fire and you didn't have insurance, it may be better financially for you to just abandon the home. You'd default on your mortgage, and the mortgage provider would have nothing. Insurance helps protect the home so that it will be there in a total loss scenario.
Once your mortgage is paid off you are more than welcome to stop purchasing home insurance, but it is not always the best decision to do so because you lose that protection over one of your most valuable assets.
How Can You Lower Your Premiums?
If you received a bit of a shock over how much your quote for insurance premiums are, know that there are some ways to lower how much you pay. The best way to do this is to increase your deductible. Your deductible is essentially how much you pay before your insurance company starts kicking in the rest. When you have a low deductible, you won't have to pay much but will make up for it by paying a higher premium. When you have a very high deductible, you'll significantly reduce how much you pay for your insurance premiums in exchange for paying more if you have to use it.
It is always a good idea to have enough money in savings to cover your insurance deductible. If you have a $300,000 home and a 1% deductible, that means you need $3,000 in an emergency fund to pay the deductible if it is necessary. If you don't have the cash on hand, you won't actually be able to use your insurance when you need it. Speak with an insurance agency in your area.