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Buying a home is a life-changing event that comes with certain responsibilities, including insurance needs. New homeowners are often unsure about what insurance they need and may confuse title and homeowners insurance. That’s why understanding title insurance vs home insurance is so important. You need both types of insurance but for entirely different reasons. Title insurance protects your ownership rights while homeowners insurance protects the structure and your possessions. To be safe, you should have both policy types.
When you purchase a home, it needs to have a clear title. The title establishes ownership, and if there are any irregularities, you and your lender could lose ownership. For property owners, an unclear title can spell financial disaster. For a lender, it means a significant loss in revenue.
Although most lenders require a title search to determine if there are any problems, such as other claims to the title, conflicting wills, liens on the property or back taxes, some problems may escape detection. That’s where title insurance comes in. You only pay once for title insurance, and that payment protects you and/or the lenders from financial loss because of those common title issues.
Insurance companies sell two types of title insurance: owner’s title insurance and lender’s title insurance. A lender requires the borrower to purchase lender’s title insurance to protect them in case the seller isn’t legally able to transfer the title. This type of insurance only protects the lender.
Often, sellers will purchase title insurance for the buyer to protect them in case of a title issue. When you are purchasing a property, you should be certain that the deal includes title insurance that covers:
Any of the above issues can send you to court and/or cost you a significant sum. Remember, a title search removes some of these risks but title insurance offers the most protection from title problems.
Once the property purchase agreement is completed, the closing agent can begin the title insurance process. There are well-known national and regional insurers that offer this coverage, so finding the right policy should not be difficult. The cost of the insurance ranges from $500 to $3500 depending on the cost of the home, the geographical region of the home and the insurance provider. A policy can be expensive, but you will only pay for it once.
When it comes to title insurance vs home insurance, more people understand home insurance. As with title insurance, homeowners policies protect your investment, and most lenders require them, but that’s where the similarity ends. This type of insurance protects the actual structure and its contents from accidents, storms and other types of destruction.
The average homeowners policy covers repairs for the following items:
These policies also cover your damaged or stolen possessions such as clothes, appliances and furniture (although some high-ticket items may need separate coverage.) And you get coverage for medical and legal fees stemming from injuries that others sustain while in your home. If your neighbor trips and breaks his leg on your steps, the policy protects you.
Most of these policies cover your outbuildings and outdoor equipment like grills or swing sets. A standard policy should also cover your fences and walls. Some items, such as a swimming pool, will probably raise your coverage rates since they cause many injuries each year.
Standard homeowners insurance does not cover flood or earthquake damage, since these hazards are linked to geography. If you live near a major river or the ocean, for instance, you will want to buy flood insurance if it’s available to you.
Experts recommend you buy enough homeowners insurance to replace your home and its contents. You may also need additional funds for a place to stay temporarily. You should not overestimate your needs, but buying too little insurance can be a huge issue if you lose your home. Your insurance agent will help you determine how big of a standard policy you need as well as any additional insurance.
There are two basic types of homeowners insurance: actual cash value and replacement value policies.
These policies cover your home and possessions at their actual cash value at the time of their destruction or theft. For instance, if you bought your kitchen appliances a decade ago, you’ll receive the purchase price minus depreciation and without adjusting for inflation. You receive what your ten-year-old stove is worth. That means you may not have nearly enough funds to pay for a replacement model.
The best choice by far is a replacement value policy. With an approved claim, you’ll receive enough money to buy a comparable replacement without depreciation or inflation being a factor.
The average cost of a homeowners policy in 2021 is $1312 per year. Of course, this amount varies according to location, home value and insurer.
Both types of insurance are absolutely necessary although they cover different things. You need both policies to protect what is probably your biggest investment: your home. And most times, your lender will force you to purchase both policies to protect its interests. While title insurance is a one-time purchase, most people will pay over $100 a month for homeowners insurance while they own the home. But the coverage is a necessary expense.
Your insurance agent can guide you when it comes to coverage amounts, but it pays to do your homework first. That way you’ll have an idea whether the quotes are reasonable for the insurance you need.