What You Need to Know About Real Estate Insurance
Insurance is an integral part of all economic sectors, and that includes real estate. Every real estate purchase requires title insurance. And if you have tried requesting a mortgage, your homeowners’ insurance may have been among the mandatory requirements. Your lender may even require mortgage insurance and flooding insurance.
If you are in the real estate business or are hoping to dive into it, discussions and explanations on the risks that may affect your customers or property are a necessity. Real estate insurance can help limit your liability in case a peril occurs. However, it can be complex.
Do you need title insurance if you are in the real estate sector?
Title insurance is a policy that provides coverage against losses related to property ownership or titles. This insurance is relevant to both commercial or residential property owners. While title insurance is not mandatory in most locations, it is important.
You should not rub off the idea of buying title insurance until you have had a conversion with your insurance company and lawyer. Once you get all the information on the table, you can then decide whether it is necessary for you based on the situation at hand and your needs.
What coverage is provided by title insurance?
Title insurance is a one-off fee referred to as a premium. It provides coverage for losses incurred due to:
- Unknown title defects- This includes issues that may arise if the property ownership becomes unclear over time
- Existing liens against the property- For instance, the previous owner may have had mortgages, debts from utilities and even condominium charges.
- Title fraud
- Errors in public records and surveys
- Encroachment issues
- Title issues that can affect the ability to lease, mortgage or sell the property in the future
Title insurance does not provide coverage for:
- Environmental hazards such as soil contamination
- Known title defects issues not listed in public records
- Native land claims
- Non-title related issues such as flooding, general wear and tear or even theft
The major types of title insurance include:
1. Owner’s policy
This is an insurance policy that protects the purchaser against property defects in the real estate property excluding exclusions as listed in the insurance policy. The insurance agent is responsible for obtaining and recording the documents needed for the title. The validity of the owner’s policy remains, provided the property ownership does not change. Owners need to be careful when transferring property ownership to other parties by a quitclaim deed. This is because the deed may render the title ineffective. Instead, a special warranty deed should be used to facilitate ownership changes.
2. Lender’s policy
This is an insurance policy that protects the lenders’ interest. It ensures that the loan documents are valid and follow the assignment of the deed of trust or mortgage in the event that the loan is transferred.
Other coverages that you need to consider before buying or selling real estate include:
Homeowners insurance
This is an insurance plan that provides coverage against real estate property damage, the contents of the property and liability coverage. Property insurance is a condition set out by lenders to borrowers whereby homeowners are required to maintain the insurance until the property is fully paid for. The homeowner’s policy offers comprehensive coverage for perils such as outbuildings, liability, the contents of the home, and even living expenses when the home is inhabitable.
Lenders mortgage insurance
This insurance protects lenders in case they need to close loans then have small down payments. It is necessary in most instances if the down payment does not exceed 20% and specifically benefits the lender. If the borrower defaults, the insurance provider is required to pay the lender any loss suffered.
Credit life insurance
This is an insurance policy that provides security for the lender in case the borrower dies before clearing the loan balance.
Here are some extra tips to help you navigate real estate insurance
- Ensure you get the right policy- You need to be well-versed with the different types of real estate insurance in the market. Buying the wrong policy is rare, but it can occur, especially if you work with companies or brokers who are not fully knowledgeable in the sector. You need to understand the difference between landlord insurance, homeowners’ policy and even investor policy.
- Work with a reputable insurance company- Real estate is an excellent investment. However, it can result in major losses. For instance, if the property is destroyed through a fire, the cost of rebuilding can be unthinkable, not to forget the emotional turmoil in the entire process. This is why you need to work with a reputable insurance company, one that will not take you around in circles when you file a claim. How can you get a reputable insurance company, you may ask? Ask around for referrals, check reviews online and carefully go through each company’s policy and understand the way the firm operates. If working with a broker, be on the lookout for their area of expertise and ensure they are fully knowledgeable in the real estate sector.
- Evaluate how much you need to pay for the real estate insurance- Real estate insurance pricing should be a major consideration. The cost of your property insurance affects how much you will be paid when you make a claim. You will not be thrilled when the reimbursement cheque barely covers the property’s repair needs. You can reduce your real estate property insurance cost by buying more than one policy from one insurance provider.
- Do you need additional coverage- You need to figure out which additional coverage is vital for your property. For instance, if you live in an area that is prone to flooding, you should purchase flooding insurance. This also applies to other issues that your insurer does not provide coverage for.
- Take your time and compare your real estate insurance options- Do not be in a rush to buy real estate insurance. Shop around and compare rates when applying for a mortgage. Be on the lookout for the fine prints in each policy. These include exclusions, limitations and even deductible amounts.
