Three Kinds of Insurance You Need When You Buy a Home

Buying a home is a risky business, and you’ll need insurance to keep yourself protected. But are all kinds of insurance necessary, or are some insurance products just there to cost you money that you don’t need to spend? Let’s take a look at what kinds of insurance you need to buy a house, and why each is so important.

Homeowner’s insurance is probably the first kind of insurance to come to anyone’s mind. It’s the insurance you buy from an insurer of your choice, and it protects you should your home be damaged or destroyed. That way, you no longer have to deal with the financial risk of losing your home-your insurance provider does. What you really want to look for in homeowner’s insurance is a company that will cover all your needs-fire, earthquake, and so on-so that you don’t pay multiple insurance companies for the protection you need. Also, purchasing multiple policies from the same company often results in discounts all around. Do make sure to check over what your policy covers and what it does not, you cannot change your policy to include past disasters. You will probably have to get a separate policy for flood coverage, since many standard policies do not provide that. You wouldn’t need homeowner’s insurance if you do not have a mortgage, but this is very risky, since any damage would be left uninsured.

You may also want to purchase title insurance. Title insurance provides you coverage from issues with the previous homeowner. If legal issues arise, such as someone disputing your title ownership (perhaps because the seller did not have the right to sell the title), or if unpaid taxes or liens are present, all of that may be covered before the sale. It is important to note that title insurance does not protect you after the sale is finalized, so if someone placed a lien on your home after you purchased it, title insurance would not help you-though if you choose to sell, the next buyer may buy title insurance to protect themselves from issues during your ownership. Title insurance is not required, but it may help to protect you when you buy your new home.

You may also want Private Mortgage Insurance (PMI). You need PMI if your loan or mortgage down-payment is smaller than 20% of the value of the home you’re buying. This protects the lender if you should default on your loan, and it allows you to make a smaller down-payment when you buy your new home. Based on the average cost of a home in 2006, you could save as much as $45,885 on your down-payment by using PMI, letting you get into a new home sooner. And, as soon as your mortgage amount is lowered to 80% of the value of your home, you can cancel your PMI. This can really help make things smoother when buying a home, though it’s only required if you intend to make a small down-payment on your loan.

So there you have it-three kinds of insurance. You only need homeowner’s insurance, since accidents and natural disasters do happen. But title insurance can really smooth out the purchase of the home, and PMI can make things move more quickly.