Purchasing a home is one of the largest investments you will make during your lifetime and to keep your investment safe you will need to buy homeowner’s insurance. All lenders require you show proof of homeowner’s insurance, also known as hazard insurance, prior to your loan closing.
You will purchase the first year’s homeowner’s insurance up front prior to closing and have it paid one year in advance. If your loan product requires it, your lender will escrow or hold one-twelfth of the annual premium with each month’s mortgage payment. This ensures your home is always covered by insurance. As the months pass and the escrow account builds up to equal 12 months of your insurance premium, the lender has enough funds to pay for your insurance bill the next time it is due. The lender will pay the upcoming year’s insurance for you from these escrowed funds and continue collecting one-twelfth the payment each month for the upcoming year.
The cost of homeowner’s insurance can vary by hundreds of dollars depending on the insurance company you work with. The insurance company will use variables to provide an estimate for you. Those variables that influence how much you will pay for your homeowner’s insurance include: your credit, the type of house you own, the age/condition of the house, the liabilities associated with your property, and where you live, to name a few.
For instance, you may have a dog of a particular breed which could affect your homeowner’s insurance. If the breed is considered to be aggressive by nature, you may find yourself looking at an increase in your insurance premium. A pet could be a liability.
Other liabilities that affect your premium include recreational amenities like a swimming pool or a trampoline on your property. Both will have a significant affect on your insurance premium. You may also want to check with local authorities such as your building inspector because you may have to secure the area adjacent to the pool and trampoline with fencing and a gate to prevent accidents. Towns and cities have restrictions as to where a pool can be situated on a residential lot especially if there are wetlands nearby or the houses in the neighborhood are close to one another.
As the colder weather approaches, items you may install in your home to help offset the price of home heating oil, gas and electricity may cause your insurance to increase. When having a wood burning stove or small propane stove installed, be sure to use the services of a professional and get the proper permits from your local building inspector. You do not want to risk a loss from fire to find out you did not follow the correct procedures and cannot get the coverage you need to rebuild.
With the high prices of home heating oil, gas and electricity, you can safely assume your insurance carrier will want to know if you have installed a secondary heating system. Be safe and call your insurance agent before you purchase to find out if you get any type of reduction in premium for installing a particular brand of wood stove or secondary heating system. Some may be rated for safety.
You will need to contact your local fire marshal or building inspector to learn what your town or city’s zoning requirements are and whether or not you need a permit. Be sure the installation is done according to regulations.
Taking precautions is time consuming but if not done properly, your insurance may not cover any accidents or fire that could occur as the result of a faulty installation or backyard incident. It is worth the extra time to follow up with your agent and local building authorities and do the right thing.