Introduction
In the world of home buying, your costs will start to add up fast: down payments, closing fees, taxes, and maintenance, etc. No wonder most individuals who are planning to purchase their first home, or their first investment property, will shudder at the thought of having to buy insurance. Need it or not, a monthly insurance payment is just another monthly expense you are loading on an already strained budget.
But here’s the cold reality: an insurance policy on your assets that are real estate is not a miscellaneous expense. It exists to safeguard your assets against losing your investment in an instant. The question is not, can I afford insurance? The question becomes, can I afford NOT to carry insurance?
Let’s dive deeper into why it’s worth the price of admission to real estate insurance and how that serves property owners in the long term.
A general definition of Real Estate Insurance
“Real estate insurance” is a catch-all classification of policies that are designed to provide protection of property owners. Depending on the type of property, and what is done with it, insurance can cover:
- Homeowner’s insurance (on a home)
- Landlord insurance (on a rental property)
- Title insurance (on ownership of property)
- Flood, Earthquake, or Wildfire (acts of nature)
- Umbrella policies (additional liability)
All of these polices have their own fees, but they all assure the same end result; peace of mind for your financial investment.
The Actual Expense of Avoiding Insurance
Skipping insurance looks like an excellent means of saving some cash at first glance; however, consider what will happen if a terrible disaster strikes such as:
- A kitchen fire would have damages of up to $50,000 or more.
- Flooding would cost tens of thousands of dollars to repair and is usually not included in basic policies.
- If a guest is injured, a lawsuit could cost hundreds of thousands of dollars.
- You could potentially file a title dispute to lose ownership of your property.
When you set the above risks alongside each other, the premium is minimal. For a standard homeowner’s policy in certain nations, the payment is usually as little as 0.25% to 0.5% of the property value per annum – obviously less than the repair cost just outlined!
Advantages of Property Insurance
So, what exactly do you actually get for paying those premiums? These are the key advantages:
1. Coverage of Property Damages.
Fires, storms, theft, and vandalism can happen to anyone. Insurance ensures that you will not have to pay for all the repairs or reconstruction costs.
2. Coverage of Personal Belongings
Homeowners policies usually include coverage for personal property at home – furniture, electronics, clothes, and many others.
3. Liability Coverage
If someone is hurt on your premises, medical bills and attorney fees will be covered by liability insurance. Otherwise, you have to bear the expenses yourself.
4. Lost Rental Income
For property owners who rent out houses or buildings, there exists specialized insurance for lost rental in income if the property becomes unlivable due to this type of event.
5. Comfort
And most likely the most precious advantage is a comfort. Knowing you are insured will enable you to concentrate on living in, or renting the property without anxiety or worry on “what if.”
Addressing the Cost Issue
Yes, insurance is a cost. The good thing is that insurance premiums can be maintained affordable yet ensure adequate protection:
1. Shop Around – You should discuss with more than one insurance provider prior to making a commitment. The insurance rate and coverage can be vastly different.
2. Combine Policies – Most insurance providers offer discounts if you bundle your home, auto, and umbrella policies all into one.
3. Verify Your Deductible – You can reduce monthly premiums when you increase your deductible value. Just make certain that you will be in a position to pay the deductible value.
4. Use Risk Mitigation – Perhaps you can reduce your premiums when you adopt risk mitigation measures, including a security system, fire alarm, or storm shutters.
5. Yearly Review of Coverage – Don’t pay for coverage that you don’t require. But as your property value rises and the cost of living rises, you need to make sure your coverage is covering up for inflation.
When Insurance is Less “Worth It”
There are periods where homeowners feel that insurance is of lower value – in many cases the homeowners have been paying premiums for many years and may have never had to make a claim. Although this can be infuriating, remember that insurance is not an investment or an asset; it is a safety net.
Think of insurance in terms of being like a seatbelt. You hope that you will never need it. However, when you do need it, the insurance will save your financial life.
In Perspective
Insurance is a part of a larger context in the housing market. It will usually be required by lenders to approve mortgages and properties without adequate insurance are typically harder to sell. In this way, insurance is not just individual protection, but it contributes towards the general stability of the housing market.
For investors in real estate, insurance is even more crucial. With a variety of properties to protect, the level of risk exposure increases, and it becomes a sound tool for portfolio protection.
Conclusion
So is the cost of real estate insurance worthwhile? Absolutely. Although it seems like one more expense to bear, it is nothing compared to the cost of damage to the property, lawsuits, or ownership disputes.
Insurance makes sure that your own home, or your investment, is not just an illusion, it is a part of the sound foundation of your future. You will feel secure knowing that the mix of risks, insurance coverage, and price points are under control, with security as a consequence.
Real estate is among the biggest investments you will ever make in your life, if not the biggest investment of your life. Wouldn’t it be one of the safest investments too, along with a mortgage?
