More than 3.4 million homeowners in the US don’t have homeowner’s insurance. If you don’t have insurance, it’s up to you to cover the cost of any theft or damages when disaster strikes.
Are you wondering what the difference is between mortgage insurance and homeowners insurance? There are many coverage options for insurance, and it can sometimes get confusing. Here’s some helpful information about your coverage and protection options.
What Is Mortgage Insurance?
Mortgage insurance might sound like something that will help you if you can’t make monthly payments, but it’s not. It protects your mortgage lender if you default on your mortgage. The lender also takes your property as collateral, as extra protection for them.
You must have this insurance coverage if you have a Federal Housing Administration (FHA) Loan. That’s a home mortgage insured by the government and issued by an approved lender. Mortgage insurance is also required if you have a high-ratio mortgage.
A high-ratio mortgage is when your down payment is lower than 20 percent of the total cost of your new home. In this situation, you need to pay for mortgage insurance because you are a risky client for the lender. The cost of your mortgage insurance takes your down payment and credit score into account.
It’s good to clean up your score before applying for a mortgage. With FHA loans, the insurance cost is a set amount. Otherwise, the rates can vary from 0.5 percent to 1.5 percent of the loan amount per year.
If you become ill and can’t make your payments or lose your job, mortgage insurance doesn’t help you out. It doesn’t protect you if the value of your home drops.
If you want to avoid paying a mortgage insurance premium, there are two things you can do. You can sidestep the need for mortgage insurance by increasing your down payment. You can avoid this insurance cost if you qualify for a conventional, non-FHA mortgage.
How Does Homeowner’s Insurance Work?
When you compare mortgage insurance vs. home insurance, the main difference is who the insurance protects. Mortgage insurance protects the lender, but homeowner’s insurance protects you. It covers the value of your home in the event of a loss.
Your homeowner’s insurance will have some personal liability coverage which is financial protection. This insurance protects you if you’re sued for injury and/or property damage to another person. It also protects your personal property and the contents of your home.
Your homeowner’s insurance also protects the lender. If you have a mortgage, your lender accepted your home as collateral. The lender will want you to have homeowner’s insurance, to protect their interest in your home.
If you own your home and don’t have a mortgage, you don’t need to get homeowner’s insurance, but you might lose your assets if catastrophe strikes. You would be exposed to personal financial risk and could lose everything if you’re successfully sued.
Coverage and Protection Options
The right insurance means the difference between losing everything or being covered. It’s important to take the time to do your research. Find a trusted independent insurance agency to help you get the coverage you want.
Here are some of the insurance categories to consider when you’re making your plan.
Personal
This broad category of insurance includes home and auto insurance. It also offers many other options to protect you and your personal property.
If you’re a renter, you’ll want a policy to protect your personal belongings from damage. The landlord’s insurance will only cover their assets. If you own a boat or a recreational vehicle, specialized coverage is available.
Your lender may want you to have hazard insurance if you have a mortgage. Generally, this coverage protects your home from damage or destruction by vandalism, fire, and natural disasters or hazards.
Business
You want to protect physical business assets and have liability coverage that protects your operations from various risks. There are many different business insurance products to select from. Each business is unique, and you want coverage tailored to your needs.
Directors and officers’ liability insurance protects them from decisions they make on behalf of your business. Workers’ compensation insurance protects your employees against losses from illness or injuries at work. It’s required in most states.
Farm
Insurance for farmers is complex because often, your farm is both your home and your livelihood. You can find policies that cover both. You can obtain homeowners insurance separate from the policy that insures your equipment and farm buildings.
Farm liability coverage is financial protection against claims made by a third party for injury and/or property damage. Some insurance covers you against accidental environmental damage from chemical spills or runoff. Other coverage will ensure your livestock and contents, including grain or hay.
Life
When you want your family protected if the unexpected happens, life insurance provides the coverage you need. The three main types of life insurance are term life, whole life, and universal life. Discuss each option with your insurance agent to discover which type is best for you.
Premiums will depend on your age and health at the time you apply. Life insurance is a major part of estate planning, so you might want to obtain advice from your financial advisor.
Health
Insurance coverage to protect your health varies, but it usually covers most doctor and hospital visits. You can obtain insurance that covers prescription drugs and wellness specialist visits and medical devices in some cases.
Vision and dental policies cover routine examinations and treatments. They may cover the cost of new glasses and may have some contact lens coverage. You may obtain insurance for dental procedures and cleanings and some portion of major work you might need.
Home Insurance Protects the Homeowner
If you’re looking for home or mortgage insurance, you’ll want to find a company that’s focused on your specific needs. As an independent insurance agency, we work for you, not the insurance company. That gives you the power of choice.
Contact Gessel and Associates for the solutions you need with the quality service you deserve.
