Purchasing a new home can be a complicated process with many moving parts. It may have taken months to find that dream home, to negotiate the sales price, and to get approved for the loan. With the closing date soon, there is still one piece of the puzzle that needs to be completed: home insurance. This piece will have its greatest effect long after the closing has faded from memory.
A month or so before the closing date, your mortgage broker or loan officer will remind you to provide a binder, which is proof of insurance for the new home, to close on the loan. Don’t fret; a good independent insurance agent will help you build the proper insurance program for your family’s new home. The agent collects the necessary information from you including facts on the home, some personal information such as current address or home insurance claims you have had in the pas, about unique items at the house (wood stove or pool), and if you plan on running a business or working from the home. These all matter for crafting appropriate insurance protection.
The agent should do the heavy lifting to design an appropriate insurance program, integrating your needs with the best insurance carrier. What does this process look like?
1. The first step is to determine a replacement cost estimate for the building coverage limit on the house. This is not the assessed value, nor mortgage amount, nor market value, but the amount of money it would cost to rebuild the house if it was ever destroyed, by a fire, hurricane, or whatever else.
2. Next, the agent (we) secure cost estimates from several different companies based on the geographical location of the house and the building amount calculated by the replacement cost.
3. The agent (we) tailors the insurance offer from the best priced companies to provide protection for the standard risks (fire, wind, etc), plus your unique issues with the house. Thing like a large barn or outbuilding, collections, business exposure, or other distinct characteristics that would affect your insurance program.
At this point, we also typically recommend pricing your auto insurance, as it often makes sense to “bundle” the home and auto policies together with the same insurance company. Some companies offer bundled discounts even if both policies with different companies, but with the same agency.
The agent (we) will help you to make choices on the best insurance options for you in your new home.
Once you select which company and policy options you’d like to go with, you will determine how the bank wants you to pay for the policy. In most cases, the bank requires you to pay the homeowners policy in full prior to the closing, and then will begin to escrow – setting 1 /12th of the premium aside monthly - next year’s premium, In some instances, the bank may allow you to pay for the insurance at the closing.
Once the paperwork (application veryfying info) is done we provide the bank and closing attorneys with an insurance binder (proof of insurance). You are now cleared to close!
It is helpful to have a good independent insurance agent who can make this process easy for you. It is important that your agent learns about your family, the home, and how you plan to use the home to create the most comprehensive program, for a fair and competitive price. Also, once the policy is selected, a good agent wwill coordinate the binder documentation process seamlessly with the bank or closing attorneys.
Good luck on your new home search, and remember that it is never too early to find a good insurance agent who will help you along the way.