Home Insurance Coverage for the House You Buy
FHA loans and other government-backed mortgages do not (on paper) require you to carry specific types of homeowner’s insurance, but you’ll want coverage just the same to protect your investment.
Mortgage insurance protects the lender in case you default on the loan. Home insurance protects your investment by insuring your home and its contents.
First and Foremost
But just because you pay for both types of insurance does not mean there is protection for all circumstances, including damage to your home or the destruction of the property you buy or build from the ground up with an FHA home loan.
For example, some borrowers are unaware that flood insurance is completely separate from insurance for water damage.
Suppose you do not have specific flood insurance coverage (“rising water”). In that case, the insurer will likely not reimburse you for any damage related to rising water issues, including floods, hurricanes, intense storms, etc.
You may be covered against water damage from a broken pipe, but unless your coverage specifically mentions rising water or other terms for a flood, you are NOT covered. FEMA federal flood insurance may not cover damage to personal property in the basement of a flooded property. Read the fine print for all policies before you choose.
Important Home Insurance Issues
Like most other insurance, you may be asked to pay a deductible. The key to setting your deductibles is having cash to pay them should the need arise.
Don’t set your deductible higher than you can afford to pay out of pocket today. If you need to choose a higher deductible, make a budget to pay for it when it arises. And it WILL arise if you own the house long enough.
Ask Your Insurer
Ask about specific coverages for fire, flood, and other natural disasters. Some may require a separate policy and are not covered under the “umbrella” of your current policy. Ask the insurer to explain under what circumstances you are covered and which specifically require an addition to your current coverage.
Types of Coverage
One type of coverage may address damage to the home's physical structure, another may offer a plan to compensate you for loss of personal property, and you may also be offered liability insurance. State law, lender requirements, and other variables may affect your transaction and your experience may vary.
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