Home Owners Insurance – Facts you probably didn’t know

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An Owner’s Title Insurance Policy is purchased one time, often at the subject properties initial settlement and is good forever.  The title insurance even protects the buyer’s heirs and beneficiaries.  Homeowners insurance, otherwise known as “Hazard Insurance” is much different.  When buying a property most homeowners elect to purchase some form of homeowner’s insurance (HOI) policy.  In fact because most home purchasers use a mortgage to finance part of their purchase a HOI policy is a must since the lender requires their investment be protected.

The types of various coverages a HOI policy provides are numerous and not the subject of today’s post. What is most important today are some facts that most homeowners, investors and even professionals in the industry lack the understanding of.  The following few questions are items all home buyer’s, home owners, realtors and mortgage professionals should understand when it comes to a HOI policy.

1. What happens if someone dies, is their estate covered through the HOI policy automatically or do they need to be named as an additional insured? 

This is a common issue especially with many transactions I have seen lately.  As a realtor listing a property your worse night mare can come true if an estate has hired you to sell a property (or even properties) and all of a sudden the property sustains a major loss.  Whether it’s via a storm, vandalism, theft, etc. it is vital that the property is protected and unfortunately the prior policy that was in place may have been cancelled unbeknownst to your clients. Make sure the estate was named as an additional insured to be covered.  That being said not all companies will insure a home held in an estate.

Even more importantly if the home becomes vacant specific insurer’s could drop coverage all together. Binding a vacant home policy would be extremely important in this situation.  We have seen in the past an estate market a home, the insurance carrier cancels the policy due to vacancy and sends notice to the property.  No one catches it on time and, uh oh… no insurance.  This can be even more essential to take note of for investment properties when a tenant moves out.  Make sure your insurer understands there will be a vacancy and be certain that coverage will not lapse.

               What if a trust owns the property, does the trust need to be named as additional insured? 

If a family owns a property in trust the trust should be the first named insured and the occupants listed as additional insured or both parties as first named insured’s.  Again not every company will offer to do this so check with the your specific insurance company.  I bring this up because several homeowner’s deed their property to a trust, specifically vacation properties that are to be shared amongst children. Doing such without notifying the home owners insurance company is a big “No-No”.  What you may have thought was covered all of a sudden may not be due to certain provisions and exceptions in your policy.

               What happens if a homeowner moves out of his primary residence into another but keeps the property to rent out?

A couple lives in a town home for several years and due to family expansion decides to move to a larger single family home.  They decide to keep their town home but have not found a renter as of yet. Unfortunately there is a local trouble maker who caused some destruction on the exterior of the property and their a is a claim… some policies will give the insurer a reason to reject the claim due to it being vacant? Every policy has what is known as a vacancy clause 30,60,90 or 180 days of a property not being inhabited so first you need to check with your policy to see which applies.  If that time frame is exceeded and the company can prove it the policy no matter how it was written or what endorsements are on it will drop to an HO1- Basic coverage.  Biggest things not covered on a basic are water, freezing and limited theft coverage.  Again, this is something to stay on top of and merely make sure you are in touch with your local home owners insurance company and verify your coverage is OK.

Lastly, as a title company we recognize the fact that over 80% of all home owners have their home owners insurance paid for out of escrow by their lending institutions.  The lender in this case has a escrow department that is held as a fiduciary in order to pay your taxes and insurance.  We obviously suggest you make sure the items are paid timely in order to avoid any lapses and obtain any applicable discounts.  But more importantly, if you do not use the banks escrow department make sure that if the policy changes you advise your bank right away. The bank undoubtedly is listed as an additional insured and if a particular policy is cancelled, lapses or becomes terminated for any reason the bank will receive notice and force place you right away.  The force placement will 9 times out of 10 be much more expensive then a policy in which you shopped for.  The difference will be charged to your escrow account and you may have just cost yourself more then just a few bucks!

Hope some of this helped! Home owners insurance carriers each have their own variable provisions.  The key is to understand your coverage and make sure you stay on top of it.