Homeowner's insurance is similar to car insurance and protects a property from damage. Property premiums will vary depending on the size of the property and numerous other factors based on risk of potential damage. Homeowners insurance comes in many shapes and sizes, but will often times increase a mortgage payment for a homeowner.
Cost Added
Mortgage payments are made up of four major items: the principal, the interest, the property taxes and homeowner's insurance. Both property taxes and homeowner's insurance are placed into an escrow account that captures funds from the total mortgage payment, placing them into a separate account to pay tax bills and homeowner's insurance on an annual basis.
Since homeowner's insurance is factored in to the mortgage payment, it increases the total payment on the loan, accounting for the total premium each year.
Requirements
While carrying homeowner's insurance is not mandatory under law, many mortgage companies require that a buyer purchase homeowner's insurance. The reason for this added monthly expense is to protect the lender's investment in the property should it become damaged, and the homeowner's investment in the property by reducing costly repair bills.
The amount of the premium paid on an annual basis will be based on the square footage of the property and whatever risk factors apply. Properties that are not within 500 feet of a fire hydrant, for example, might be charged a higher premium than those that are in closer proximity, due to the risk involved for a fire hazard and the resulting damage.
Policy Issuers
There are many different companies that will issue homeowner's insurance policies. Companies such as Allstate, State Farm or Progressive will often times offer a homeowner a discount when homeowner's insurance is added to car insurance coverage.
Quotes for homeowner's insurance are free, and will typically only include the minimum amount of coverage, which amounts to the cost of repairing or replacing the property after depreciation is deducted. As with automobile insurance, the cost of homeowner's insurance premiums will increase based on the amount of coverage selected and the company holding the policy.
Additional Coverage
In addition to typical lender required minimum coverages the owner can select coverage for valuable personal items and/or medical coverage to an individual who has been attacked by a family pet. While these coverage items are not considered a requirement by a lender, a homeowner can select these additional coverages, resulting in an increased premium, adding more to the monthly escrow account.
It is wise for a homeowner to discuss the potential risk and loss options with an insurance agent in order to select the correct amount of coverage for their home investment and other applicable items.
Changing Providers
Homeowner's insurance policies can be moved from one company to another should the homeowner find a policy provider that gives them a more favorable quote. However, when changing providers it is required that the homeowner provide this information to their mortgage holder so that the mortgage company adds or deducts the annual premium from the monthly payment.
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