Consumer Tips: Insurance

The purchase or sale of a home may well be the single most important financial transaction you are involved in during your lifetime. When purchasing a house, there are certain types of insurances you should know about. The following is a description of each:

• Homeowners Insurance: This is insurance that protects the homeowner from losses or damage to the home, personal property, or damage to other people or property. You can choose to insure your home and its belongings for either “replacement cost” or “actual cash value”.
  • Replacement Cost: The amount it would take to replace or repair your damaged property with materials of similar type without deducting for depreciation.
  • Actual Cash Value: The amount it would take to repair or replace damage to your home after depreciation
• Hazard Insurance: Protection for the borrower and lender against property loss due to fire, wind, vandalism, and natural hazards.
  
• Flood Insurance: Provides coverage that most homeowner’s insurance does not. It provides coverage for contents and structure damage caused from flooding or flood-related erosion.
  • You must have flood insurance on property located in a flood zone prior to securing financing.
  • Over 30% of all flood claims are requested on properties that are not located in flood zones.
  • You should check with your insurance company for optional flood insurance.
    
• Private Mortgage Insurance (PMI): A buyer is required to purchase PMI when the down payment is less than 20% of the purchase price. It insures the lender against loss if the buyer defaults on the mortgage.
  • When equity in a home reaches 20-25%, the PMI Company may not require this insurance.
  • Lenders will make loans to borrowers who put as little as 10%, 5%, or even 3% down.
    
• Title Insurance: Protects homeowners and lenders against loss of their interest in property due to legal defects in the title. The seller buys a policy for the purchaser; the purchaser buys a policy for the lender.
  
• A title search will determine the following:
  • That the seller is the legal owner.
  • What unpaid mortgages, judgments, or liens must be satisfied before a “clear” title can be transferred.
  • The existing restrictions, easements, and rights of way.
  • The status of property taxes and other assessments.

If you have any questions about any of the procedures mentioned here, contact the Pinellas County Office of Consumer Protection at (727) 464-6200.