You’ve secured a loan, done inspections and completed escrow. Congratulations! You’re a new homeowner. But as you settle into your new digs, choose paint colors and arrange furniture, one thing you might not be expecting is the onslaught of solicitations that will soon flood your mailbox.
Home sale documentation is of public record as soon as the property title is transferred, making a new home owner the perfect target for direct marketers. And as the "important notices" start streaming in, it's challenging to decipher between what you might legitimately need, and what you can toss.
Here's MainStreet's guide to junk mailings and offers that can save you money:
Mortgage Protection Insurance
Also know as Mortgage Disability Insurance or Mortgage Life Insurance, these letters claim to cover your mortgage in the event you die or are unable to work. Some will quote your exact mortgage loan amount, making them seem even more legitimate. But experts agree new homeowners should resist the urge to buy mortgage insurance.
“These policies are usually overpriced, sometimes up to five times more expensive than term life insurance, and don't offer enough benefits,” says Randy Kivett, a financial planner based in Tacoma, Wash. “If your family is dependent on your income, I recommend you purchase some sort of life low-cost life insurance or long term disability insurance that covers a broader use of your funds, than being relegated to only covering your mortgage.”
Important Note: Don’t confuse the above terminology with Private Mortgage Insurance (PMI), which lenders require when a down payment is less than 20%. PMI protects the lender only in the event you default on the loan and is added to your monthly mortgage payment. Once 20% of the home value is invested, the lender is required to drop the extra charge.
Earthquake insurance isn’t included in your homeowner’s insurance, and new homeowners are reminded of this lack of coverage through mailings from insurers. If you're considering earthquake insurance, be prepared for sticker shock. Most policies have a high deductible (10-15%) with low contents coverage, which explains why only 12% of California homeowners have earthquake insurance. (In California, most earthquake policies are sold through the California Earthquake Authority, and don't cover things like swimming pools, where earthquake damage can be costly.)
There’s no magic formula for whether earthquake insurance is worth it, even in high risk areas. "A far better use of your money is to make sure your home's structure is sound,” says Scott Marantz, a contractor based in Redding, Calif. His suggestions? “Add shear walls, replace or improve the foundation to ensure it's properly bolted and make sure the water heater is strapped.”
Important Note: If you do opt for earthquake insurance, find out what the statute of limitations is to make a claim. Not all earthquake damage is immediately recognizable.
Called an "umbrella policy," coverage kicks in when you've reached the limit of the underlying homeowners' policy. Most homeowners' insurance policies come with at least $100,000 of liability insurance, and umbrella policies typically offer coverage ranging from $1 million to $10 million. "The umbrella is an extra layer of protection that gives you peace of mind," says Claire Wilkinson, vice president Global Issues for the Insurance Information Institute, a non-profit. The umbrella policy covers against "bodily injury or proxy damage that you, your family members or pets cause to other people and the liability portion would pay for both the cost of defending you in court, up to the limit of the policy," says Wilkinson.
If someone slips on your stairs, falls in your pool or has a nasty run in with your dog, an umbrella policy can potentially save you from a financially devastating lawsuit. The Insurance Information Institute estimates an umbrella policy costs between $200 and $350 per year, for an additional one million dollars of liability protection. The next million costs approximately $75, and each subsequent million costs $50 per year.
Coupons and Cards
Take a quick look before tossing the mounds of mailings. Your public homeownership records also make you privy to promotions for interior design services, closet organizers, window treatments and discounts like 20% off coupons for retailers like Bed, Bath and Beyond (STOCK QUOTE: BBBY) and Home Depot (STOCK QUOTE: HD).
Hate junk mail altogether? You can’t keep your government records confidential. If you want to put an end to the marketing mailings, you need to contact each one individually and ask to be removed. Or visit DoNotMail.org, which is working to establish the equivalent to the national "Do Not Call" registry designed to free consumers from telemarketing.