Single-family home buyers need to purchase homeowner’s insurance shortly before they close. Some have never bought any insurance before. If that is your situation, what do you need to know?

What to be ready to pay before closing

Short answer: You will pay 15 months of homeowner’s insurance by closing day.

For houses, lenders will require that you pay your homeowner’s insurance policy for the first year before closing. Then, you also pay the next three months of the next year at closing.

Part of your monthly mortgage payment will collect for next year’s insurance, in escrow. When the bill rolls around on your one-year anniversary, your lender will pay that bill, and have a three-month cushion, in case it goes up. There are limits on how much extra they can keep. If they have too much, you’ll get a check from them.

In a condo, most of the time, the insurance is paid by the condo association. Your lender will review the insurance to be sure it meets their requirements. If the condo association’s policy is sufficient for the lender, then you don’t need to buy insurance before closing. However, you may want insurance for your unit that is not covered by the Master (association) policy.

Condo owners frequently choose to purchase additional insurance to cover liability and damage within the condo unit, and also insure their personal property from theft and damage. Your insurance agent can review the condo master insurance, then advise you on adding insurance you might need beyond what you are paying for through the condo association.

What kind of insurance would a first-time buyer know about before buying a house?

Renter/tenant insurance: Your landlord’s homeowner’s insurance covers the damage to the building, liability if someone is hurt there. Tenants sometimes buy a policy to cover loss of their personal property due to theft or damage.

Car insurance: There is minimum insurance required for every car on the road in most states in America. Minimally, you need protection for anyone you hurt or property you damage with your car. Drivers may then add on insurance to cover repair of their own car, towing, or rental car during the repair period.

Insurance Agents help with choices

Like renter insurance or car insurance, homeowner’s insurance policies have options. Policies are priced differently depending on what they cover and the amount of the deducible before the insurance coverage pays. Just like you might have a $1000 deductible for vehicle damage in a crash, you might have a $1000 deductible for house damage.

Some of the add-ons for homeowner’s insurance include:

  • Coverage for water back up and sump pump discharge or overflow. That’s what happens when the sewer line collapses outside, then comes into the basement because it can’t drain out.
    • Sewer line backup can also happen if the sewer system gets flooded and the wastewater flows in, instead of out, of the house. Sump pump discharge or overflow floods the basement if the hoses break or the sump drainage system can’t keep up with the water coming into the basement.
  • Fungus and Mold. Insures against property damage and medical cost from fungus and mold.
  • Refrigerated food products. Insures the cost of the loss of food in the event of a fire, storm, or other loss of electricity.
  • Tenant relocation expense. Covers the owner of a two-family home or other rental property against needing to house tenants while the house is being repaired.

Whether you want these additional coverages depends on their cost and your sense of how likely it is that this bad thing might happen. Your insurance agent should have the skill to advise you.

Who does what, when  there is a loss due to fire or storm?

Adjuster: That person evaluates the damage and estimates the cost of rehabbing the house.

Remediator: Companies like ServPro work with the insurance company to secure the house and clean up the damage.

Insurance Agent: This person coordinates the process of getting the loss paid for. Who you choose matters.

What do you want to know about your insurance agent? How to choose one:

Insurance agents are a bit salesperson and a bit service coordinator. Sometimes, they might even feel like a social worker.

When you have a claim, you will be at your worst. It is the insurance agent who will be getting the adjuster to complete the estimates and getting the remediators to get the job done. They know people who do those services well, and not so well. They can help you get what you need.

Think about what experience makes you feel comfortable. Your insurance agent is the person who will be your helper when you are having a very bad week.

Some screening questions to ask

  • What insurance products do they work with? Frequently you can get a better deal on car and home insurance if you are getting both from the same person.
  • How long have they been in the insurance industry?
  • How does their experience make a claim go smoothly? Ask them to tell a story.

Last week, I had a networking lunch with Hunter Carroll. He is an independent agency owner with  owns an office of Goosehead Insurance. The first thing I found out about him is that he is a pleasant guy who is easy to talk to. That would be important when I am miserable after a tree falls down.

Goosehead Insurance will bundle homeowner’s insurance with car insurance to help customers save money. His company independent agency is pretty new; however, Hunter was a claims adjuster before he opened his insurance company agency. Because of his claims experience, he has seen a variety of things that can go wrong with houses and cars. He knows, generally, what to expect in the repair/rehab of a variety of common problems that require an insurance claim. His claims experience has helped his customers when the adjusters did not fully recognize what needed to be done. He can talk their language, which smooths the process.

When I told him about a client who recently had a house fire, his immediate response was, “Was anyone hurt?” I like that. Then we talked about what went well and not so well in fires he has worked with.

Hunter told me a sad story about a claims job he did, where the homeowner had $20,000 worth of damage to a finished basement because of a sewer line backup. Turns out the insured person did not have coverage for sewer line backup. This was a terrible conversation to have with someone. The homeowner’s basement was full of sludge and she had to pay to clean it up. Hunter then balanced that story with a recent example of someone who he sold insurance to, who in the same situation, was almost fully covered for a similar sludgy mess.

He knows car coverage, too. He mentioned this pro tip that I never heard before: If you have a car accident in Massachusetts, you can appeal the surcharge if you were not at fault. The appeal costs $50, and it is well worth it.