This was originally published on Monday, April 21, 2014, in the Pacific Daily News. Click here to subscribe to the PDN.
Question: I am about to purchase my first home but need advice on homeowner’s and title insurance.
Answer: Congratulations on your new home! Buying a home is a huge responsibility and probably going to be one of your largest expenses. When buying a home, it’s important that both insurances are used to cover your property and home.
Title insurance ensures that the property which you are buying is free and clear of any legal issues with regard to ownership of the property.
This covers back property taxes, omissions in deeds, clerical errors and fraud. Title insurance is available for lenders as well as the owners. Lenders require a lender’s title insurance policy to protect it while there’s a loan. If you obtain a mortgage, a lender’s policy is based on the loan amount. Once the loan is paid, the lender’s title insurance ceases. This is why an owner’s title insurance policy is critical. As long as you own the property, the owner’s title insurance policy will be in place. You have the right to choose your title insurance company. Be sure to choose a company that has a good reputation and you feel will be in business for years to come.
Homeowner’s insurance is a necessity to protect you financially. Like most insurance it can be difficult to understand. Many do not read their coverage until they have a claim. Understanding your insurance policy will ensure that you can rebuild your home and replace your belongings in case of a loss. Depending on what type coverage you have, your policy may cover your home and/or personal belongings in the home, such as appliances, furniture, etc. Here are two homeowner’s insurance options on the structure:
• Replacement cost pays you the cost of replacing the home up to the insured amount. Usually, there’s no deduction for the depreciation of home and is based on the face amount of the policy; and
• Actual cash value covers the cost to replace your home minus the depreciation cost at the time of the loss.
Once you decide which homeowner’s policy is best for you, there are other options to consider:
• Contents or personal property coverage covers the valuables within your home. It will reimburse you the depreciated value for clothes, furniture, appliances, electronics and more. Theft and burglary of property are covered under this option.
• Personal liability covers you for bodily injury and property damage claims that occur on your property.
• Medical payments helps pay medical expenses for those who are injured on your property.
• Temporary housing eases the burden of living in a place until your home is rebuilt.
Check with your insurance company to see what kind of disasters are covered. Usually, homes that are in flood zones, earthquake zones or typhoon zones may require special insurance to cover those disasters.
Know exactly what you are buying and ask questions about your policy. Work with your insurance representative to help you find an insurance policy that fits your needs and budget.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.