When most people first think about buying a home, they are likely not considering the insurance implications. However, insurance plays an important role in the purchase process. Here are some facts about insurance you’ll want to be aware of as you buy a home.
Homeowners Insurance
It’s important to remember not all homes qualify for insurance. Because of a property’s location and claims history, affordable coverage may not be available for the house you’d like to buy.
Before making a purchase, talk to an insurance professional about whether you’re able to secure adequate coverage at a price you can afford. Also make sure to talk about what is included under the policy, including whether there is enough coverage to rebuild the home in case it is completely destroyed.
It’s also important to discuss additional coverage for earthquakes and floods. In some cases, mortgage lenders have required flood insurance but the premiums were higher than the buyer could afford.
CLUE Report
An InsuranceQuotes survey last year found 86 percent of Americans were unfamiliar with the Comprehensive Loss Underwriting Exchange database, called CLUE, that insurers use to document the claims history associated with a property.
Although only a property owner may access a CLUE report, buyers can request one from the seller to use as they inspect and investigate the house. Property owners can access the report online at PersonalReports.LexisNexis.com.
By reviewing this report, buyers can see what claims were filed against a property, be alerted to inspect whether appropriate repairs were made, and look into how the results will affect the availability and cost of homeowner’s insurance.
The CLUE report provides information about the claim type and payments made. Although useful, the document may not be comprehensive. Thus, buyers will want to thoroughly review the seller’s disclosures, inspect the property and talk to an insurance provider.
Title Insurance
As part of the home-buying process, a title company will search property records to make sure the property can be cleanly transferred from the existing owner to the buyer.
Even though a title search may come back clean, there could be possible problems with the property’s title in the future, such as the emergence of an unknown heir. Two title insurance policies, one for the buyer and one for the lender, protect both parties from losses incurred in these types of situations.
Before closing, you’ll have the opportunity to review the commitment for title insurance. Make sure you study this document so you understand what situations are insured and which ones are excluded.
Pay particular attention to the exclusions. For example, easements and HOA filings will likely be excluded from title insurance coverage. That means you might want to rethink your purchase if you don’t want to pay HOA dues or want to build a shed in the backyard on a utility easement.
HOA Considerations
When buying in an HOA, there are additional insurance issues to consider. If the property is an attached townhome or condominium, the law in many cases requires the HOA to provide insurance coverage for the dwelling. However, there are exceptions depending on the development so it’s important to research the HOA insurance policy and talk to your own provider.
The deductibles on HOA policies are often high — sometimes $10,000 — and homeowners are responsible for this amount if they have a claim. That’s why it’s important for owners to have additional insurance to cover items like the amount of the deductible, the home’s contents and personal liability.
In sum, HOA buyers should make sure they understand what insurance coverage the association provides and what they need to purchase on their own. Additionally, buyers should make sure the association has adequate insurance coverage to protect the common areas, such as the clubhouse, swimming pool, etc.
Insurance issues are just some of the many items you’ll want to be aware of when purchasing a home. To find a Northern Wasatch Realtor who can provide you with more information about proactive steps to take when buying a home, visit NWAOR.com.
-Brenda Nelson
2018 President, Northern Wasatch Association of Realtors