The Lender requires the Borrower to have a pre-paid Homeowners Insurance Policy for a term of one year, which includes the Lender as an additional payee.   Homeowner Insurance Policies combine personal liability coverage and hazard insurance coverage for a dwelling, its contents and other structures.  The policy will not pay mortgage payments due to illness or injury.  The primary purpose of this insurance is to protect the Lender's collateral in the event of loss.  Careful selection of a homeowner's insurance policy is critical to protecting the Borrower's investment as well and is one of the most important decisions to be made when purchasing a home.

Most times the Borrower begins by contacting the company they have their car insurance or renter's insurance through.  Some companies offer incentives to retain accounts.  Realtors also may have referrals available.  However, it is the Buyer's choice when deciding on a particular insurance company and coverage.

When contacting perspective Insurance Companies the Borrower should be prepared to supply accurate information including the complete property address, general description of the dwelling unit, type of construction, type of home, number of rooms, square footage, purchase price, age of the home, location of the nearest fire department and fire hydrant, security devices in the home, other structures on the property, pets living in the home, special valuables and the deductible that could be afforded in the event of a loss.

The Borrower should obtain price quotes from several different companies.  Each price quote should be evaluated based on amount and type of coverage for the primary dwelling, other structures on the property and personal property.  The Borrower should also consider endorsements and additional coverage necessary, liability coverage, perils included or specifically excluded, possible discounts and overall total cost.

The  structural coverage includes the main dwelling and any structure attached to it i.e. house, garage, attached decks, wall to wall carpeting and built in appliances.  Free standing structures on your property (garages, gazebos and tool sheds) are often covered with standard protection equal to 10% of the dwelling.  Trees and shrubbery normally can be replaced up to a limit of 5% of the dwelling coverage.  Homeowners should also consider the likelihood that use of the home may be lost for a considerable amount of time and include this possibility in the Policy.  Please note that some insurance companies have restrictions regarding pets and pet damage.

Most insurance policies also cover personal property.  Items are frequently insured under one coverage limit that equals 50% of the total insurance policy amount.  Please note that special limits apply to certain types of personal property, higher limits are available through optional coverage.

Moving time is the perfect opportunity to inventory personal belongings.  Video taping rooms and/or separate items is an excellent idea.  Inventory booklets are often available from insurance companies.

When determining value one must consider the difference between Replacement Value (cost to replace with "new") and Actual Cash Value (current "worth" minus any depreciation).  Please note that the Lender requirements may differ from personal desires.  In most cases, the Homeowner may want to insure the dwelling and its contents for their Replacement Values, which most likely will differ from their Actual Cost Values.  The Homeowner may also choose a policy with automatic inflation adjustments so that the replacement cost keeps pace with the general level of price increases.

When a Homeowner purchases a new item of value, they should make a copy of the receipt and keep it in a safe place away from the home, in a safe-deposit box or in a fire resistant cabinet-along with video tape of the dwelling and its contents.  When it comes to Homeowner's insurance, the more documentation the better.

The third type of coverage provided under your Homeowner's Policy is liability coverage for you and your family.  In today's world, lawsuits are not uncommon even among friends and acquaintances.  The amount of liability coverage should not be tied to the value of your home.  It would not be considered extravagant to have at least $300,000 of liability coverage.

Homeowners' policies regularly provide other types of coverage, including off-premises theft protection and unauthorized use of credit cards.  The Homeowner should understand which provisions are included in the standard coverage and which may require supplemental premiums.

Each policy has a deductible amount, which is a clause that exempts the insurer from paying a specific amount in the event of a claim.  This amount varies according to coverage.  Commonly $250 or $500.  Typically, the higher the deductible amount, the lower the cost of the policy.

Homeowner's Policy claims are handled similarly to car insurance coverage.  The insurance representative determines the amount of loss and if the event is covered under the policy.  The Homeowner facilitates the scheduling of repairs.  After the costs are deemed appropriate the insurance company issues a check to pay for the completed repairs.  The check is payable to the owner and the repair company and sometimes the Lender.  All interested parties are required to endorse the check.