If you are buying a house you will need to get insurance on the home for its loss in case of fire, flood, and storm. This will be required prior to the close of escrow because it protects both you and the lender, who has far more at risk monetarily than do you. So shop early for this insurance to get a good rate, even though you are not activating the policy for several weeks or many months. Escrow cannot close until the insurance company provides a binder to Escrow and Escrow sends that through to the lender.
If you are buying a condominium (and by this we mean a duplex, a row house, a twin home, a stacked flat, or a townhouse – any attached housing) the homeowners association may cover the insurance on the building in your monthly dues. But don’t stop with that knowledge. Find out what is covered. They may provide reconstruction in the case of a fire, but is it for everything, or just for the shell of the building? Would you have to replace your carpet, tile floors, vinyl, cabinets, electrical outlets, and appliances. If so you will need to provide this information to the next vendor with whom you will work.
Your insurance on a condominium is half way between renter’s insurance and that for an owner of a house. Since it does not cover the structure the costs are significantly lower. It will cover liability, should someone trip on your front porch and sue you, lost luggage and purses in a theft or while traveling and other elements not associated with a renter’s policy. It is called Condominium Owners Insurance and you want to have this activated from day one of your closing. It will cover the appliances, cabinets, etc. in a fire that the HOA insurance does not. Again, shop this in advance.
Title Insurance is a little more complicated than the picture I will paint here. Read your Title Insurance policy which will most likely be ordered by Escrow. Basically, it covers the value of the property in a case where there is someone that claims to own it other than the Seller. Let’s say that the Seller obtained the property by inheritance from the Seller’s recently deceased mother. A year later, an adopted daughter of that same mother, finds out the house has been sold. The daughter wasn’t mentioned in the official will but she contests who is the true owner of the property in court. The title search, which precedes the issuance of the Title Insurance, should have turned up that court filing. If it did not, and the daughter successfully obtains the legal title and the right to possession, the Title Insurance would most likely be obligated to make up the loss to the Buyer.
Homeowners Association insurance may not cover every possible loss. A condominium board of directors in St. Louis may choose not to obtain earthquake insurance, not being aware that the largest earthquake in the contiguous United States occurred there a couple of hundred years ago. Often this is done for economic reasons, say if it were to add $200 per month to the association dues, which it could easily do in California or Alaska for instance. And I wonder, how many Hawaiian condos have volcano insurance on them? So understand your risks, the costs of insurance to cover them, and what would make you feel comfortable.
If you are one of those fortunate families who can pay all cash for a house or a condo, do not forget to buy your insurance. A home can be flooded or burned down the day after close of escrow. A one day delay in obtaining a policy could be the difference between security and financial disaster.
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