Here's the Insurance Fine Print You Should Double-Check Before Buying a Home
When you’re preparing to buy a house, homeowners’ insurance can feel like one more item on an already long closing checklist. But the details buried in a policy can determine how much you’ll actually pay when something goes wrong.
And if you’re buying a condo or co-op, you may need to scrutinize the building’s insurance just as closely as your own. Here’s the insurance fine print experts recommend checking before committing to a home.
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Check the Policy’s Exclusions
It’s important to know what a homeowners policy doesn’t cover, particularly risks that may require separate coverage. Michael Benoit, founder of ContractorBond and resident of Pacific United Insurance Services, pointed to things like “flood, earthquake, mold, pest damage and anything tied to deferred maintenance.”
Homeowners insurance primarily covers the structure of your home and your personal property and some personal legal responsibility for injuries to others or their property while they’re on your property.”
It's always a good idea to have a licensed agent help you review the property's specific exposures and policy wording, said Heath Squier, CTO at Equity Edge Lending.
Turn Percentage Deductibles Into Real Dollars
If you’re only looking at the premium, you may be missing other important information.
Squier pointed out that a lower premium “can hide a deductible that empties the emergency fund later.” He recommended asking the agent to translate every percentage deductible into dollars. For example, on a policy with a $500,000 dwelling limit, a 2% deductible means the homeowner could have to come up with $10,000 before insurance covers the remaining eligible loss.
Learn About Coverage for Roof and Other Features
Squier said buyers should not wait until after a purchase to get an insurance quote. “Start checking insurance as soon as a specific property is a serious contender, while there is still time to investigate the terms and your contractual options,” he said.
Pay particular attention to whether the policy places different settlement terms, inspection requirements or repair conditions on the roof or other components of the house, he said.
Also, remember that a seller's premium is not your quote. “Ask a licensed agent to quote the exact address using accurate information about the roof, systems and intended occupancy and to explain any inspection or repair conditions before coverage is bound,” Squier added.
For Condos and Co-Ops, Read the Building’s Master Policy
Condo and co-op buyers have another layer of insurance fine print to investigate known as the building’s master policy, according to Anthony Guerriero, certified public accountant (CPA) and managing partner at Manhattan Miami Real Estate.
That policy reveals "the master deductible," he explained. "A large building-level loss does not stay with the building. It arrives at your door as a special assessment and it lands on whoever owns the unit when the bill shows up, not on whoever owned it when the damage happened.”
Also ask an agent what the master policy does not cover, he urged and ask what happens to your premium if the building has a claim.
Look Beyond Insurance Documents
A condo or co-op buyer should also investigate information about building age, roof conditions, electrical systems and the claims history of the building itself because, Guerriero pointed out: “You are underwriting a structure you do not control and cannot inspect on your own.”
A good place to find info not offered upfront is the reserve study and the board minutes, "which is where the argument about the facade or the roof has been sitting for three years.”
Add Insurance Costs to Your Home Affordability Calculation
Remember that insurance fine print can affect whether the house is truly affordable. Before closing, add the annual premium, applicable deductibles and any necessary supplemental coverage to your housing calculation.
“If the full premium and a plausible out-of-pocket loss leave no room for ordinary living costs or repairs, that should change the purchase decision,” Squier said.
The key is to investigate insurance while there’s still time for what you learn to influence the purchase decision.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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