Your mortgage lender does not like to take risks!

When you purchase a home with a mortgage loan, you’ll be required to get homeowner’s insurance to protect your lender’s interest in the property. Even if you don’t have a mortgage–it is a good idea to carry homeowner’s insurance. And the cost is not as much as you might expect! Homeowner’s insurance costs depend on a few factors including type of home, pets and neighborhood.

You’ll need to pay the first year in advance which will be wrapped into your closing costs due at settlement. After that, your lender will put a little of your mortgage premium you pay each month into what is called an escrow account. Your mortgage company will usually pay your property taxes and homeowner’s insurance premiums from this escrow account–which is very convenient for homeowners!

How much insurance do you need?

That depends on your lender’s policies. You may just need to have enough to cover your lender’s interest at market value. But most experts agree that you should cover the “replacement cost” of your home. Replacement cost is the cost of all materials required to rebuild your home.

What is covered?

Homeowner’s insurance protects your home if it were to be destroyed by fire, theft or a natural disaster. You’ll find a basic policy covers most of your needs and will cover regular home issues like roof replacement or a fallen tree damage to your property. However, if you have an expensive jewelry collection or other unusual and costly items, you may need additional insurance.

Standard homeowner’s policies do not insure against floods, earthquakes or sinkholes. If you live in a flood zone, your lender will probably require you to purchase additional flood insurance. Even if you are not required to purchase specific hazard coverage, you may ask what it would cost if those events are most likely to occur in your area.

You’ll want to consider a Home Warranty for protection from the expense of repairing or replacing covered home system components or appliances when they break down. Most basic home warranty plans cover central heating and air conditioning, plumbing, electrical systems, water heaters and ductwork.