What you need to know about homeowners, PMI, and flood insurance (Part 3)

In part one of this blog series I covered pet, renters, and travel insurance. In part two of this blog series I discussed auto and medical gap insurance. In the final installment of the insurance blogs I’ll be covering three more types of insurance coverage. Let’s get to know more about Homeowner’s, Private Mortgage Insurance and Flood Insurance.

Homeowner’s Insurance – Homeowner’s insurance, sometimes referred to as Home Insurance or Hazard insurance, is a property insurance that homeowner’s generally carry to protect their home or residence in the event of damages caused by wind, fire, hail, theft, or vandalism. Most standard homeowner’s policies don’t cover floods or earthquakes, but it’s possible that those coverages can be added to your policy for an additional cost. In addition, homeowner’s insurance provides coverage in the event someone is injured on your property.

If you own your home free and clear, you are not required to carry homeowner’s insurance, however, I strongly encourage anyone who owns their home to carry homeowner’s insurance. If you aren’t currently carrying homeowner’s insurance you need to run, not walk… but RUN to the nearest insurance company and obtain a homeowner’s insurance policy. You might be asking “what’s the big deal”? Well, for most, your home is your largest asset and you want to protect your assets at all costs. If you don’t have insurance and your home is damaged or destroyed, how will you fix or replace it? The costs will come out of your own pocket or savings- assuming you have the cash flow to do so. If not, you could be left with devastation, not to mention finding a new place to live.

If you have a mortgage on your home, you are required by the lender to carry homeowner’s insurance. They want to ensure your property is protected because they have a vested interest in your home (and a lien). They want to minimize their losses should damage occur to your home. If you don’t have insurance but do have a mortgage, a lender can purchase insurance for you but they must notify you first. Typically the insurance they purchase for you, and charge to you, as part of your loan, is at a higher cost and it only covers the structure of the home, not your personal contents.

Private Mortgage Insurance – Often referred to as PMI or MI (mortgage insurance) is insurance that you may be required to have on your mortgage loan in the event you have less than a 20% down payment. PMI protects the lender and minimize their losses in the event you default on your mortgage. PMI premiums are added to your monthly mortgage payments. The cost for PMI insurance can vary depending on the size of your down payment. The larger your down payment, the less your PMI might be. When shopping for a mortgage it’s important to know upfront if the potential mortgage you are seeking requires PMI, the cost of the PMI and understanding if/when you can cancel your PMI. PMI can be required until you have either paid down 20% of your loan or you have 20% of equity in your home. this varies by lender). Some lenders have loan products that don’t require PMI insurance, so you are encouraged to shop around, know your facts, and compare mortgage products.

Flood Insurance – This insurance typically covers structural damage and personal property/belongings damage that was caused by flood damage from a hurricane, river, tidal wave, or heavy rains. It’s important to note that standard homeowner’s insurance typically doesn’t cover the damages caused by floods or flooding.

In 1968, Congress created the National Flood Insurance Program (NFIP) to help provide a means for property owners to financially protect themselves. The NFIP offers flood insurance to homeowners, renters, and business owners if their community participates in the NFIP. Participating communities agree to adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding. According to floodsmart.gov over 20% of all National Flood Insurance Program flood insurance claims have been filed by individuals living outside of mapped high-risk flood areas.

If your mortgage is a federally regulated or federally insured loan, depending on your risk area for flooding, you may be required to obtain flood insurance. Typically the higher the flood risk, the more likely your chances are. A lender can require flood insurance on a property even if it’s not federally required. The cost of flood insurance will depend on various factors which include coverage, property location & flood risk zone. For more detailed information regarding flood insurance, you may visit the Federal Emergency Management Agency’s website at www.fema.gov/national-flood-insurance-program.

As I wrap up the final blog of the 3 part series on various insurances, my hope is that I’ve provided you with some basic information that will help you assess your current situation to ensure you have adequate protection as it relates to your assets.

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