Buying Step 8: Get Homeowner Insurance

Homeowner insurance protects homeowners in the event of catastrophe. If something goes wrong, insurance can be the bargain of a lifetime.

Insurance and warranty coverage should be in place for the sale closing. Insurance policies and warranties have limitations and individual programs have different levels of coverage, deductibles, costs and "endorsements" (additional forms of coverage that may be available). For details, speak with REALTORS®, insurance brokers and home builders.

There are various forms of insurance associated with home ownership, including the major types listed below.

Title insurance: Purchased with a one-time fee at closing, title insurance protects owners in the event that title to the property is found to be invalid. Coverage includes "lenders" policies, which protect buyers up to the mortgage value of the property, and "owners" coverage, which protects owners up to the purchase price, i.e., protects both the mortgage amount and the value of the down payment.

Homeowners' insurance provides fire, theft and liability coverage. Homeowners' policies are required by lenders and often cover a surprising number of items, sometimes including such property as wedding rings, furniture and home office equipment.

Flood insurance: Generally required in high-risk, flood-prone areas, this insurance is issued by the federal government and provides coverage for both property and contents. Your REALTOR® will know what coverage you require.

Home warranties: Buyers of new homes want assurance that if something goes wrong after completion the builder will be there to make repairs. But what if the builder refuses to do the work or goes out of business?

Home warranties bought from third parties by home builders are generally designed to provide several forms of protection: workmanship for a short term; mechanical problems, such as plumbing and wiring, for a short term; and structural defects for a long term.

Home warranties for existing homes are typically one-year service agreements purchased by sellers. In the event of a covered defect or breakdown, the warranty firm will step in and make the repair or cover its cost.