One of the final steps before closing on the purchase of property is obtaining property hazard insurance, simply referring as property insurance. If the purchase is financed by a loan, the lender will require the property to have adequate property insurance to protect the lender’s interest. In addition, most investors who purchase property for cash obtain property insurance before completing the closing in order to protect their investment. Many first-time homebuyers are confused about why they need to obtain property insurance and what property insurance covers and does not cover. This article provides basic answers to common questions about property insurance.
What is property insurance? Property insurance is a series of policies or a single policy with multiple coverages to protect the property owner from loss if their property is damaged or destroyed and provide coverage for the property owner’s liability. If the property is damaged or stolen or someone is injured on the property, the property insurance will repair or replace the property or pay the claim of the person who was injured on the property.
The categories of property insurance include homeowner’s insurance, renter’s insurance, flood insurance, earthquake insurance, and personal property coverage among other policies. If the property is damaged or lost, the property insurance policy will reimburse the policyholder for the actual value of the damage or loss. For people whose only property investment is their home, homeowner’s insurance may be the only type of property insurance they ever need. Homeowner’s insurance protects your home and possessions against damage or theft. All mortgage companies require their borrowers to have homeowner’s insurance coverage in an amount equal to the replacement value of the home and require that the insurance also cover the mortgage company so that the mortgage is paid in the event of a loss.