How to Quote a Homeowner's Policy
Quoting a homeowners policy is far different than quoting a vehicle. A home policy has more complex questions, requirements, and coverages compared to other types of insurance. In the process of buying a home, having to quote a homeowner policy is something you are likely to come across.
The First Step
The first step is to determine if you actually need a homeowner's policy.
A homeowner policy is one that covers both the interior, and the exterior including the roof. It is usually found with single family homes, but can also cover a townhome, a condo, or duplex if you are responsible for repairs to the roof, siding, and interior.
A condo policy is written for homes that you own the inside, but do not insure damages to the roof or siding. That portion is often overseen by the Condo Association, or a community master policy. Not all condos fall under condo policies, just as not all homes fall under home policies. The type of coverage needed is the determining factor.
Another situation is insuring a home that tenants rent from you. These do not fall under standard homeowner policies and instead are referred to as a Landlord Policy or a Dwelling Fire Policy.
Once you determine that you need a homeowner's policy and not a different type, it's important to know what you need before starting a quote.
What Do I Need to Know?
The whole process of quoting relies on the answers you give to questions about the home. Most companies can pull some information about the home, but a lot of it comes from you confirming and providing answers. The top 5 questions people run into when getting a home quote are:
What is the age of your roof?
The roof is the first line of defense in the case of a disaster and is one of the biggest considerations when quoting for a home. Most insurers prefer roofs under 5 years old, that have a 30-year life expectancy. As the roof ages, the cost of insurance can increase. The reason for this, is because insurance companies assess the risk of the roof. Newer roofs are less likely to be worn, damaged, or have problems. As time goes on however, the wear and tear and breakdown of materials can result in damage like leaks or are less likely to withstand a large storm. This increases the chance of a claim. The material of the roof is also often important, like the distinction of architectural shingles or composition shingles. Knowing this can be helpful in the quote.
What type of plumbing do you have?
While not all insurance companies consider this, plumbing does sometimes come up in homeowner quote. Polybutylene plumbing from 1970-1990 time frame can be concerning for insurance companies, as they are more likely to fail. If it is feasible, having this replaced is preferred from an insurance perspective. Another less preferred plumbing is galvanized steel, as they tend to be in older homes and are more likely to corrode or burst. The age of plumbing is also important to know, because a newer system will be rated much differently than an older one.
What type of heating is in the home?
Similar to plumbing, the age of the heating system can be beneficial to know. The type of heating is also considered, as oil tank heating can pose a different type of risk than an electric heating or gas heating. This also is important to list to allow the insurance to properly account for the cost of rebuilding these systems.
Has the electric box been updated?
The electric breaker box is indicative of a safe electrical system in the home. Many breaker boxes come with a label or sticker with the year it was installed included. If this information is not included, reach out to the realtor or the permitting department of the city your home is in, to find the year it was installed. If you do not have a breaker box, some insurance companies are still willing to take on older electrical systems without a replacement being needed.
What is your mortgagee clause?
The mortgagee clause is the information needed to bill the escrow for your insurance. This is different than the lender contacts information and often has specific terminology. The loan number is also needed to make sure the bill goes towards the right account. If you have a bigger name loan company, the mortgagee clause may be listed on this site: Mortgagee Clause List - ISAOA / ATIMA Address for Insurance.
Mortgagee clause information typically has ISAOA or ATIMA in the name. These stand for:
Its Successors and/or Assigns - This allows the original lender to sell the loan in the secondary mortgage market while ensuring the new holder of the loan is also protected by the insurance.
As Their Interests May Appear - ensures that any entity with a financial interest in the property is covered by the insurance policy, not just the homeowner
Having the most accurate information prevents the price changing if a company does an inspection of the property, and it makes sure you are adequately insured for damages that allow you to rebuild the home in its entirety if it was totally destroyed.
There are many layers that come with a homeowner's policy. Stuff like escrows, mortgagee clauses, and replacement cost can be pretty confusing and complicated. If you don't know what these terms mean, you're definitely not the only one. Most people aren't taught the ins and outs of buying a home.
Escrow and Insurance
Escrow is the term used to describe an account allocated for the mortgage payment, the property taxes, and the homeowner insurance monthly payments. This is often managed by a third party, separate of the lender who provided your loan. The main purpose is to facilitate the payment of the taxes and insurance, which protects the lender's investment (your home). As explained by US Bank, "Your lender pays these bills on your behalf with the funds collected from you."
The homeowner's insurance is the coverage provided in agreement for payment, to repair or rebuild the home in the case of a covered event. When you are in the process of closing on a home, the lender will typically request that you provide quotes for homeowner's insurance and secure a policy before closing.
Setting Up the Escrow Payment
Typically, the escrow can be billed using the mortgagee clause and loan number. Either in the online quote, or when you are speaking with an agent, make sure to select the mortgage company as the one who is billed for the insurance. If you are having trouble online, calling the insurance company can help you verify it is set up correctly.
Self-Pay
When escrow is not the preferred option to pay homeowner insurance, or you no longer have a mortgage, direct payment is available. While monthly payments are typically an option, paying in full can sometimes save you money. If you still have a mortgage, but you pay directly to the insurance company, the mortgage lender still needs to be listed on the insurance policy, as they still have vested interest in the property.
What Documents Do I Need?
After the homeowner policy is set up, a declaration page should be provided to you. This is a document that shows the coverages, property address, and name of the insured parties including the mortgage company. This is needed for closing to show insurance is secured.
Additional documents most escrow and mortgage lenders request are the invoice of the payment amount, and a document called a Replacement Cost Estimator.
This document is the list of features being considered in the reconstruction of the home, based on the software used by the insurance company behind the scenes to determine the dwelling coverage. This is why it is important to have up to date, accurate information when filling out the insurance quote. Having incorrect information can cause a lender to decline the insurance, and you will have to quote again which can prolong the closing process.
Final Thoughts
There are a lot of things to take into consideration with getting a first home, including setting up an insurance policy. The quoting process can be daunting for most people.
Quoting a homeowner policy takes a little preparation and time to make sure it is done right. Having everything prepared beforehand can make it easier for you to get the information set up, without a lot of setbacks.
Up Next: Homeowners have more than a mortgage and insurance payment to think about. Property taxes are another ongoing cost of owning a home, and they can have a noticeable impact on what it really costs to live there.
Next, we'll look at what property taxes are, how they are calculated, who collects them, and why the amount you pay can change over time.
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