Question 1

What kinds of insurance can I buy?

The two most common forms of insurance for real property include liability insurance and title insurance.

Liability insurance: provides coverage if someone is injured or harmed on your property or as a result of your ownership of the property. Typically it is sold in a package policy (renter's, homeowner's, business liability, etc.) which bundle a variety of coverage - such as liability, property contents, theft, and defense against lawsuits - to cover the risks that most owners of similar polices face. Some insurance carriers offer personal excess or "umbrella" liability policies to protect you from expose to liability risks beyond the standard limits offered through homeowner or business liability policies. Also, check your policy to see if flood, earthquake, tornadoes, hurricanes and land subsidence are covered. You may need or want additional protection if those adverse weather conditions are prevalent in your area.

Title insurance: provides coverage to a homeowner if it is discovered in the future that there was a defect in the title and the homeowner did not get clear title to the property. Generally required by the mortgage lender, this type of policy covers the costs of defending your title against the claims of another.

Question 2

What are ‘title insurance’ and ‘mortgage insurance’, and are they necessary?

Owner's title insurance will cover you if a problem regarding legal ownership arises that was not discovered during the title search (for example, if an earlier deed was forged, or that side yard you thought you were buying belonged to someone else). The title insurance will pay attorney fees, as well as all other costs in defending the title. Although title problems are infrequent, they could result in the loss of the house, so it can be wise to protect yourself. The bank, or lender, will likely also insist on title insurance to protect its investment - at your expense.

Mortgage insurance protects the lender (usually a bank) against the risk of nonpayment by the buyer. The only reason to buy this insurance is if your lender insists upon it; there is no benefit to anyone except the lender.

Question 3

What coverage do I get from a ‘homeowners’ policy?

Homeowners insurance includes a broad package of both property and liability coverage, many of which cover activities away from and not in any way connected with your home. Homeowner's insurance pays for the repair or rebuilding of a house which is damaged by fire or numerous other causes, such as wind damage, freezing and vandalism, just to name a few. This type of policy also pays for replacement of the personal items inside your home if they are damaged by the same causes that damage the house or if they are stolen.

A Homeowner's policy also covers your legal liability which could arise if someone is injured on your property and also for certain types of actions which occur away from your property that could result in your being legally liable for damages (Homeowner's insurance will not cover liability that is normally covered by other types of policies, such as auto, professional liability or business insurance). Your Homeowner's liability insurance pays the damage for which you become liable, up to the dollar amount of liability coverage that you purchased. Without this type of liability insurance, all of your personal assets could be at risk if you are sued and found to be responsible for causing injury to someone or damage to another person's property.

Question 4

If I own a house, am I required to buy homeowner's insurance?

Unlike automobile insurance, there usually is no law that requires a homeowner to have insurance. However, if you borrow money to buy a house, the bank or loan company will take a "mortgage" or "deed of trust" to protect its interest until the loan is repaid. The mortgage or deed of trust will require that you have an adequate amount of insurance to cover the repair or rebuilding of the house in the event it is damaged. Normally you will be required to name the mortgage company as a "loss payee" on your policy, which means that if the house is damaged, the insurance payment will go to the loan company, or jointly to both you and the loan company, to assure that the money is used to rebuild or repair the house or, if you choose not to rebuild, to pay off the loan.

One should consult with a qualified insurance professional prior to implementing any insurance strategies.

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