house insurance with cash back

Buying a home with bank finance, typically this will be a mortgage on the property, tends to mean that most of the risk is carried by the lender and they will require security and protection of the asset so that their investment is guaranteed.

They can’t control market fluctuations, but they can dictate that you take out a homeowners insurance policy so that in the event of the house being damaged or destroyed they get their money back. The lender may even insist that the policy is taken out by them, but you pay the premium, though in most cases they will only insist that your homeowners policy lists them as preferred beneficiary.

You’ll be asked to insure the dwelling, this is the actual building you live in and is most often going to be the most valuable building on the land. You should be aware that some policies will exclude a separate garage or workshop and if you need coverage for these talk to your lender or insurance broker before agreeing to the policy.

The amount you pay in premium for dwelling coverage is determined by the replacement cost of the building taking into account the area of the home, materials used in its construction, and the year of construction which might increase the risk of damage from natural hazards. An older structure may not be earthquake proof for example, or may not be fully compliant with the latest building regulations.

Remember that most insurance companies use risk assessment as a core part of their pricing model, so a building that is older or doesn’t comply with the latest regulations will most likely be considered higher risk, thus resulting in higher premium being charged.

Be aware of the excess (also known as the deductible) you will need to pay in the event of making a claim against your homeowners insurance policy. Unlike car insurance, you are unlikely to have an excess of only a few hundred dollars, it is more likely the excess fee will be in the low thousands.

It is advisable to know what your excess will be in the event of your home being damaged or destroyed because you will be expected to pay the excess, and if you don’t have funds available you might find your insurer refuses to accept your claim. It’s easy to think the lender would be on your side if your insurer refuses to accept your claim, but in fact this might not be the case and you may instead find yourself in litigation with your lender since they may not be a party to the insurance policy other than as beneficiary.

Be aware also that there are two types of excess for homeowners insurance, fixed amount, or percentage. In volatile markets it might be more common to be offered a percentage excess, meaning that as the value of your property increases, so too will your excess. It isn’t unheard of for properties to see increases of 100% or 200% over a few years, especially if you renovate.

The author has studied insurance for several years and written extensively on consumer websites. You can read more of his insurance articles on Save Insurance, for example where he writes about the term insurance rate