When purchasing a new home, it is important that you work with an Agent who will guide you throughout the homebuying process. Before closing day, you will want to understand how to protect yourself and your investment in case of an unfortunate event. Michele Harmon Team has information to help you understand the difference between home insurance and home warranties to help you be aware of your options.
Homeowners insurance pays for accidental damages and losses caused by fires, lightning strikes, windstorms, and hail. However, keep in mind that damages from floods and earthquakes are not typically covered through homeowners insurance.
In addition to accidental damages, homeowners insurance also covers the replacement of personal property due to theft or damage and liability if a person were to get injured inside your home or on your property. According to American Home Shield, the average annual cost for a homeowner’s insurance policy is between $300 and $1,000. Typically, your lender will ask you to obtain a home insurance policy prior to your mortgage being issued. Keep in mind, each type of coverage in your policy is subjected to a limit and, in most cases, you will be required to pay a deductible.
Homeowners insurance policies are typically replacement cost policies or actual cash value policies.
Replacement Cost Policies:
Once you pay the deductible, replacement cost policies provide funds to replace what you lost without considering depreciation. There are two types of replacement cost policies: standard and guaranteed. A standard policy pays out what you paid for the item while considering inflation. A guaranteed replacement policy will pay the actual cost to replace the property as well as the cost of items that have significantly increased in value, like collectibles. For example, if you paid $300,000 for a home that was destroyed by a fire, standard replacement policies will pay you $300,000 plus however much inflation has occurred since you purchased it. Guaranteed replacement policies would pay for restoring the property after the storm and constructing a new home, which is likely to total to more than $300,000.
Actual Cost Policies:
Actual cost policies take the depreciation of your items you have claimed into account before funding a replacement. This may result in you receiving less money to help you replace lost or damaged items. For example, if you spent $1,000 on a couch ten years ago, that couch is no longer worth that amount.
While homeowners insurance is typically required by lenders, home warranties are optional. A home warranty is used to cover the cost of repairs and replacements of appliances and important systems in your home that may fail or break due to age or wear and tear. This includes HVAC, electrical or plumbing components, kitchen appliances, your washer and dryer, and more. Home warranties require you to pay premiums year-round, even if you do not use it. Coverage is not issued if the appliances were not properly maintained or if the damage is due to a fire or disasters.
If you have been considering purchasing a new home, Michele Harmon Team will work hard for you! We will guide you through the process and make it as stress free as possible. It is our main priority to ensure a smooth transaction! Give us a call at 713-818-1330 today! We look forward to working with you and helping you close on your new home!