Homeowners Insurance

(And Why You Need It)

If you take out a mortgage, your lender requires home-owner’s insurance, often referred to as “hazard insurance”. It is included in your monthly payment (principle, interest, taxes and insurance — PITI), with several months in advance escrowed at closing.

But, even if you pay cash to purchase your home, it would be foolish not to have full coverage on your home.

In New Mexico, our Purchase Agreement requires you confirm that homeowners insurance is available to you. While we’ve never encountered any problems with insuring in the city of Santa Fe, nearby developments or close to a fire hydrant or fire department, there are rural areas where getting adequate insurance could be problematic. We discover this one way or another within days of an executed contract.

Homeowners insurance is about protecting your house, your personal belongings and your personal liability. It is important that the coverage you choose provide the comprehensive protection that you need.

Home-owner’s insurance protects you and your house against losses from fire, theft, liability, vandalism, water damage, wind damage, tornadoes and loss of use. Earthquake and flood insurance are not included but can be purchased separately.

Types

There are three types of home-owner’s policies to choose from. A clear understanding of the coverage each type offers will help you select the right policy for your needs. Each type carries a deductible amount you select. The higher the deductible, the lower the monthly payments…but then, you should have the deductible in savings to ensure you can cover it in the event of needing to make a claim.

• A standard policy requires coverage for at least 80% of the value of your home, excluding land and the foundation. It will usually insure your personal property at actual cash value.
• A broad-form policy is more inclusive than the standard policy and covers additional named perils such as glass breakage, smoke damage, etc.
• An all-risk policy covers even more than do the standard and broad-form policies. An example of a covered risk might be damage caused to your roof from ice build-up in the gutters.

Some of these policies offer optional guaranteed replacement cost coverage on your home and its contents. Replacement cost coverage will pay to rebuild your home and replace its contents with no depreciation coming into play.

It is important to understand that the replacement value of your home is based on your insurance company’s estimate of the cost to rebuild your home on your property. It is not based on the purchase or appraised value of the home. Most policies have a built-in annual increase of replacement cost coverage, along with an increase in premium.

Reducing Premiums

When purchasing home-owner’s insurance, there are ways of lowering your premium. Most insurance companies offer discounts for smoke alarms, fire extinguishers, dead bolt locks, whole-house alarm systems and, increasingly, better-built/green homes. If your home is fairly new, or if you elect to insure your automobiles with the same company, you are likely to receive a discount on your premium.

Another way of lowering your premium is to select as high a deductible as you can afford. Raising your deductible reduces your premium.

We all buy insurance hoping that we will never have to use it. GreenRoads Buyers Agents are happy to provide contacts to Santa Fe area insurance agents and give them the information they require about the house you are in the process of buying, so they can provide you an accurate quote.