Homeowner's Insurance: What You Need to Know

Your lender is required to inform you if the home you are purchasing (or refinancing) is in a flood zone. If it is, the lender will require you to obtain flood insurance coverage sufficient to replace the structure if it is destroyed by flood, with a maximum requirement of $250,000. According to the Insurance Information Institute, the average cost of coverage for a home in a flood-prone area is $400 a year. But even if you live outside a flood zone, you should consider getting coverage.

While federal law stipulates that the lender must require sufficient flood insurance coverage if your home is in a flood zone, it is up to the lender to decide how much hazard coverage will be required.

Know Your Servicer

After closing, the bank or mortgage company that made your loan will likely sell it to another institution or sell the loan-servicing rights. You might be told at your loan closing who the new servicer will be. You might also be informed later on that your loan has been sold or that the servicer has changed. In any event, it is very important that you know who is servicing your loan and who is responsible to pay your annual insurance premiums and property taxes.

Make sure the servicer pays your insurance premium on time. Call the servicer at least two weeks before any insurance premium is due, and ask if the payment has been sent. Then call and ask your insurance agent to confirm that the premium payment has been received. If the servicer fails to pay the premium on time, the insurance company might drop your policy, and you might pay a lot more to secure an equivalent policy with another insurance company. This is especially true of you live in an area prone to hurricanes or other natural disasters.