Everyone who owns a home has homeowners insurance (or should have). Every
mortgage lender requires that its collateral be insured for at least the amount of its loan.
The ever-present dangers of storms, lightning and other weather-related events, as well as
accidents, are enough to make any prudent person regard insurance coverage as a necessity.
However, homeowners insurance is one of those things that you have to have but hope you
never have to use.
In the event that you are particularly unlucky and your insured home is completely
destroyed by a covered peril, contact your insurance company. It should pay off your
mortgage loan. Even if there is no money left for the owner, paying off the loan leaves you
free to seek new financing to rebuild. If the policy amount is greater than the unpaid
balance on the loan, there should be some insurance proceeds left over for you.
In the event that you are less unlucky and your home is merely seriously damaged by
a covered peril, contract your insurance company. It should pay for repairs.
In the event that you are even less unlucky and your home is damaged in a minor
way, do not contact your insurance company. If the cost of repair is less than your policy
deductible, you will gain nothing by involving the insurance company. Even if the cost of
repair exceeds the deductible amount, just fix it yourself if you can afford to do so.
Similarly, if someone is seriously injured on your property, you will probably have to
involve your insurer. In case of minor injury, try to smooth ruffled feathers and make
amends without making a claim. That way, you will continue to have the insurance
protection you need in case of disaster.
Claims history is a big part of insurance underwriting. To an underwriter, every
claim you make not only costs the insurance company money, but also increases the
likelihood of your making another claim, maybe a big one. The ideal customer from an
insurance company point of view is one who pays premiums year after year and never
makes a claim. The deal is that the insurance company gets your money and you get peace
of mind, knowing that the insurance is there if you ever really need it.
What happens if you do make a claim or two? At best, your premiums go up, to
cover the increased risk that you will make another claim. At worst, the insurance company
decides that it no longer wants you as an insured and cancels your policy. At that point,
you have to find another carrier to issue a policy protecting you and any mortgage lender.
As a less desirable insured, you’ll pay more. If there is a mortgage on the property and you
don’t quickly obtain substitute coverage, your lender has the right to do it for you at your
expense. That almost always costs more than if you buy it yourself, sometimes a great deal
more. These consequences are simply not worth it for a repair you can pay for yourself.
Homeowners insurance, unlike medical coverage, is true insurance, not a
maintenance plan. Keep your property in good repair and eliminate obvious hazards, such
as dead trees, deformed walkways and dark staircases. Save your insurance for when you
really need it and sleep well at night.
DISCLAIMER – This article is for general information only and is not intended to
provide legal advice or to address specific legal problems. This article does not create an
attorney-client relationship. For legal advice concerning real estate transactions and all
other legal matters, consult an attorney.
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Homeowners Insurance – What Is It Good For?
Everyone who owns a home has homeowners insurance (or should have). Every
mortgage lender requires that its collateral be insured for at least the amount of its loan.
The ever-present dangers of storms, lightning and other weather-related events, as well as
accidents, are enough to make any prudent person regard insurance coverage as a necessity.
However, homeowners insurance is one of those things that you have to have but hope you
never have to use.
In the event that you are particularly unlucky and your insured home is completely
destroyed by a covered peril, contact your insurance company. It should pay off your
mortgage loan. Even if there is no money left for the owner, paying off the loan leaves you
free to seek new financing to rebuild. If the policy amount is greater than the unpaid
balance on the loan, there should be some insurance proceeds left over for you.
In the event that you are less unlucky and your home is merely seriously damaged by
a covered peril, contract your insurance company. It should pay for repairs.
In the event that you are even less unlucky and your home is damaged in a minor
way, do not contact your insurance company. If the cost of repair is less than your policy
deductible, you will gain nothing by involving the insurance company. Even if the cost of
repair exceeds the deductible amount, just fix it yourself if you can afford to do so.
Similarly, if someone is seriously injured on your property, you will probably have to
involve your insurer. In case of minor injury, try to smooth ruffled feathers and make
amends without making a claim. That way, you will continue to have the insurance
protection you need in case of disaster.
Claims history is a big part of insurance underwriting. To an underwriter, every
claim you make not only costs the insurance company money, but also increases the
likelihood of your making another claim, maybe a big one. The ideal customer from an
insurance company point of view is one who pays premiums year after year and never
makes a claim. The deal is that the insurance company gets your money and you get peace
of mind, knowing that the insurance is there if you ever really need it.
What happens if you do make a claim or two? At best, your premiums go up, to
cover the increased risk that you will make another claim. At worst, the insurance company
decides that it no longer wants you as an insured and cancels your policy. At that point,
you have to find another carrier to issue a policy protecting you and any mortgage lender.
As a less desirable insured, you’ll pay more. If there is a mortgage on the property and you
don’t quickly obtain substitute coverage, your lender has the right to do it for you at your
expense. That almost always costs more than if you buy it yourself, sometimes a great deal
more. These consequences are simply not worth it for a repair you can pay for yourself.
Homeowners insurance, unlike medical coverage, is true insurance, not a
maintenance plan. Keep your property in good repair and eliminate obvious hazards, such
as dead trees, deformed walkways and dark staircases. Save your insurance for when you
really need it and sleep well at night.
DISCLAIMER – This article is for general information only and is not intended to
provide legal advice or to address specific legal problems. This article does not create an
attorney-client relationship. For legal advice concerning real estate transactions and all
other legal matters, consult an attorney.