Suppose you want to buy a house, and the only way you can do this is by getting a mortgage. What will happen in case of a calamity such as a natural disaster or a fire? Usually, having home insurance at this point is very important, since it allows you to use money from the policy to reverse some of the damage caused. An increasing number of mortgages these days incorporate home insurance in the product, which means that the monthly rates paid to the lender include a premium for the insurance. However, this is not standard, so you should never assume that you will get insurance.
In most cases, you will need to get homeowner’s insurance in addition to the mortgage. However, the fact that this represents more financial obligations means that you should always strive to get the cheapest insurance that offers the best terms possible. Some of the things you can do to facilitate this include:
Get the insurance coverage from the same company providing the mortgage
An increasing number of firms now offer multiple financial services within the same roof. For instance, you might find that the company offering the mortgage also has an insurance division, as well as an investments one. In many cases, choosing to get the insurance from the same company will result in much lower premiums, particularly if you prove that you are getting it on account of the mortgage. Of course, this is not always the case, s you should feel free to compare the rates from other competitors before deciding on which one to get the mortgage from. In addition to potentially lower premiums, getting such financial services from one firm also makes it easier to pay your monthly bills.
Get very specific coverage
Most new homeowners tend to be drawn towards getting insurance that covers as many things as possible. Of course, this will definitely make you more secure. However, it also means that you will pay significantly higher premiums. If you are strapped for cash, you could instead identify the most important risks that you face, and then get cover for them.
For instance, if you have a home that is located in a relatively dry area, there might be no point in paying for homeowners insurance that also includes cover against flooding. You could opt out of this so as to reduce the cost of the insurance.
Be careful when doing your maths
Before getting the cover, you will be required to provide information about the value of the cover. For instance, if you own a $1 million home, you could opt to get a cover that will result in a payout of $1 million in case of a fire or flooding.
However, the higher the payout the higher the premiums you will have to pay each month. You should therefore not choose this figure arbitrarily, but rather think it through so that you pay the least premiums possible.
A case in point is when you want to get insurance against fires. In such cases, you could think about how much it would cost you to put up the house afresh after a fire, and then use this as the insurance value. If you have bought a home worth $1 million, it might turn out that the value of the land is $200,000 and the value of the house could be $800,000 as is. However, if you think about it even more carefully, you may find that the cost of constructing the same house is around $500,000. In this case, using the cost of buying the home as the value of the insurance would be needlessly expensive. You would rather use a limit of $500,000, even if this is only half of what you paid for the house in the first place. In case of a fire, you would be able to construct the house again with this amount of money.
Make changes in the home to limit the risks
If you are getting homeowners insurance against a particular adverse event, reducing the risk of this event happening will result in lower premiums. For instance, installing fire detectors and a sprinkler system will reduce how much you have to pay for insurance against fires.
Explore the discounts you are entitled to
Many people waste thousands of dollars on insurance simply because they don’t bother to find out what forms of relief and discounts they are entitled to. You may find that you are entitled to discounts based on your age, career and physical status. In some cases, you may even be eligible for a tax break. When you combine all of these, you could easily find yourself saving up to 40% on the insurance.
In summary, if you are considering getting a mortgage, you should also keep in mind that home insurance is essential. So use these tips to cut down on the cost of both!