How to Choose the Right Type of InsuranceReviewAdviceFAQ's

How to Choose the Right Type of Insurance

Did you know there are many different types of home insurance that can be important in distinct situations? Before you insure your home, explore your options to find one that fits your specific needs.

What Is Title Insurance?

Title insurance covers you-and the lender, for that matter-in a mortgage transaction. Basically, the title insurance company dives deep into the house's history to make sure nobody else has a claim to the property you are about to purchase. In essence, title insurance aims at notifying you whether a person, business, or government entity has an encumbrance, lien, right, or claim on the property.

Generally speaking, a title insurance company helps protects the interests of various parties in the real estate industry, including mortgage lenders, builders, real estate developers, sellers and buyers.

A home purchase typically is one of the major transactions in which you will engage in your lifetime, so it makes sense to take caution at every stage of the mortgage process and to ensure that you are not pouring money over a house that would never be yours or is already someone else's.

How to Choose the Right Type of Insurance

What Is Mortgage Insurance?

Don't confuse mortgage life insurance with mortgage insurance. Mortgage life insurance pays off the mortgage debt upon your death. If you purchase a home mortgage insurance policy, you can purchase a property with less than 20% in down payment. In other words, a lender generally wants to advance as much as 80% of the property value, so if you don't have enough cash to cover the 20%, the mortgage insurance policy would kick in.

As a Homeowner, What Types of Insurance Should I Consider?

Once you have a home, it's all about financial protection and risk mitigation. In other words, you must safeguard your financial situation because you not only must remit the mortgage payment each month, you also must stand ready to address any issues that could arise in the house, especially those that have insurance implications. Therefore, specialists recommend that you take a look at one or several of the below insurance options:

  • Disability insurance makes your loan payments if you are disabled and can no longer work and earn money.
  • Mortgage life insurance pays off the mortgage upon your death, thus avoiding the foreclosure of the property and protecting your estate and family.
  • Homeowner's insurance protects your house from theft and damage.
  • Owner's title insurance protects you against external or future ownership claim on your property.
  • Federal Housing Authority (FHA) mortgage insurance is required for all FHA mortgages.
  • Private mortgage insurance, or mortgage insurance, is required if you fork less than 20% of the down payment required in a mortgage transaction.

When Does a Lender Require Flood Insurance?

A lender would mandate that you buy a flood insurance policy if your property is located in an area that the Federal Emergency Management Administration (FEMA) has designated as a special flood hazard area. The creditor typically would hire a specialist to review your residence area, compare it to flood maps prepared by FEMA, and determine whether there is significant meteorological risk requiring flood insurance. Note, though, that a traditional homeowner's insurance policy does not protect you against damages resulting from flood.

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