Learn how Housing Related Insurance can help you attain your Wealth Building Goals…
With the hurricane season in full force and hurricanes Harvey and Irma doing major damage to many southern states in the United States and the Carribean Islands–TheWealthIncreaser.com was inspired to create this page to possibly help you and others proactively guard against man-made and natural catastrophes that might occur during your period of home ownership that could cause undue hardship on your life and particularly your wealth building efforts.
Even though ideally you want to be in position to never have to use insurance—you must put together a plan to have the insurance that you need (or is required) during the period in your life that you need it. Some insurance is required if you have a mortgage or home loan (hazard insurance) and some insurance is optional (at your discretion), therefore be sure to take this discussion to heart and analyze your current insurance needs in a comprehensive way.
PMI or MIP
If you purchase your home and you put less than 20% down you may have to pay PMI or MIP if a government backed loan is obtained. That additional premium is basically included to protect lenders in the event of your default on the loan (non-payment). If you put 20% or more down their risk is reduced in their eyes to an acceptable level and you would not have to pay PMI or MIP.
Although you pay the insurance premium monthly, the payment is for the protection of the lender–not you–and works against your wealth building goals. Ideally you want to purchase your home without mortgage insurance so that you can build wealth more efficiently.
You benefit by paying PMI/MIP primarily by having to come out of pocket with a low down payment such as 3.5% or 5% instead of 20% or more that allows you to avoid this premium.
If you have PMI or MIP you may be able to refinance it out if it makes good financial sense to do so. Otherwise your PMI or MIP payment will remain until you reach a certain equity position with your home and loan or the half-way point of the loan in almost all cases (refer to your closing documents for more specifics). If you plan on selling your home–that is also a way out assuming you don’t repeat the cycle with your next purchase (you put 20% or more down on your next purchase).
The good news is that you can deduct MIP/PMI, along with mortgage interest, points and property taxes on your federal and possibly state tax returns (who knows how long that will last). PMI/MIP can be financed into your monthly payments or paid by you in a lump sum at closing–and if you paid at closing you would not see the premium in your monthly payment.
Title Insurance
Another type of insurance that is not well known by many is Title Insurance. Title Insurance protects your interest in your home from a “chain of title” perspective and is usually required by the lender at the time of closing and is optional for the home buyer. It is highly recommended that you purchase this insurance to protect your interest in the chain of title as there is no way for you to realistically know with certainty who owned the home or land prior to your purchase.
Although title issues after closing are rare they do occur and for several hundred dollars you can purchase Title Insurance at closing or outside of closing and protect your home from title issues up to the purchase price in most states.
Homeowners (Hazard) Insurance
Homeowner Insurance is required if you have a loan on your house. If you own your home free and clear Homeowner’s Insurance is optional but highly recommended unless you have a net worth that allows you to effectively “self-insure” your home and still meet the goals that you have during your lifetime and after you transition.
A standard homeowner policy allows you to add on (riders) that cover additional perils that you may face such as a loss from the theft of a valuable stamp collection, a million dollar painting, expensive jewelry and the like. You can add an umbrella insurance policy that can provide you additional coverage related to certain events that may occur and you can add flood insurance on as well–and they will both be covered in this discussion.
Umbrella Insurance
An umbrella insurance policy protects you against unforeseen losses as a result of accidents and provide additional coverage so that you won’t have to tap into your savings or other accounts to cover certain claims against you. An umbrella policy is designed to help protect you and your family from major claims and lawsuits.
For several hundred dollars a year you can get additional coverage (up to a million dollars or more) that provides liability coverage above the limits of your homeowners, auto, and boat insurance policies.
Flood Insurance
If you live in a designated flood zone be sure to purchase flood insurance. The cost usually is several hundred dollars per year up to several thousand dollars per year depending on where you live and the topography of the land in the area where your home and community exists.
It can even be a wise move to purchase flood insurance even if you live outside of a designated flood zone as weather patterns are becoming more unpredictable. You can purchase directly from your insurer (some insurer’s have their own program) and the government also has a program (National Flood Insurance Program) that can also be purchased from your insurer–never directly from the government.
After a flood you must be aware of potential mold issues and other environmental concerns as the potential for serious health hazards may be present.
Renter’s (Tenant) Insurance
A rental insurance policy normally covers the policyholder (tenant) from certain losses that occur in their rental home or apartment and is usually for contents and not the structure.
If you were a property owner leasing out your home or apartment unit you would need to get a policy to cover the home or apartment unit.
The tenant would be the one who would purchase the rental insurance policy otherwise they could sustain total loss of their contents if a theft, burglary, fire, flood or other event occurred. In many cases a standard renter’s policy would cover the loss. Be sure to consider additional riders to cover valuables or what is not covered in the standard policy that you may need–or desire coverage for!
Business Insurance
Although this discussion is primarily focused on home owners TheWealthIncreaser.com realizes that many homeowners also own a business. If you own a business be sure that you have appropriate coverage based on the type of business and the risks involved.
Credit Life & Life Insurance
Many vendors offer credit life insurance policies that will pay off your mortgage in the event of your untimely death, injury or disability. The premiums are usually quite high for the coverage amount.
Other options are whole life policies and term insurance policies that would pay your designated beneficiaries in the event of your untimely death.
If you chose your coverage amounts appropriately your beneficiary(s) could be in position after your transition to pay off the mortgage loan balance and own your home free and clear–and have proceeds to do other things that you may desire that they do after your transition,
Conclusion
Keep in mind that insurance is available to cover almost any hazard imaginable and there are mega insurance companies such as “Lloyds of London” that will insure almost anything (or anyone) imaginable and your desired coverage amount is available at varying premiums.
As far as your home owners policy goes, be sure to get adequate coverage to rebuild at current building costs. Always consider your need for additional coverage and you must understand what is and is not covered. Pay particular attention to “percentage deductibles” and other jargon that may limit the coverage amount on your loss.
For an additional premium you can add “riders or special endorsements” to your policy that will cover other perils not directly stated in the standard policy. Be sure to consider additional riders that may be of benefit to you and your family prior to (DO A REVIEW AT THIS TIME) a catastrophe or other unplanned event occurring.
After a natural disaster or catastrophe grants and/or loans (FEMA/SBA) may be available after you exhaust your insurance and they may require a credit evaluation and a look (review of your past payment history) at your ability to repay.
Emergency grants may be made available to you immediately depending on the nature and severity of the catastrophe and you may be eligible for those regardless of your income or current credit readiness!
Insurance is an area of financial planning and wealth building that must be approached in a serious and analytical manner and in an all-consuming or comprehensive manner so that you can achieve the goals that you desire. You must understand fully at this time that in some areas of insurance (i.e. homeowner’s insurance policy and auto insurance policy for sure and possibly other areas as well)–insurer’s take your credit standing into consideration when determining the rate that you will pay.
The good news is that you can request that they lower your rates if you have bad credit and you make improvements. However, if you fail to request that they re-analyze your insurance rate after you improve your credit–your credit improvement will go unnoticed by your current insurer(s)–and in almost all cases your rate will remain the same!
Always remember (even at a time of disaster) that if your local, state and/or federal agencies declare your area a disaster area or issue a state of emergency you may have additional options available such as including some of your losses on your tax returns as a casualty loss (can possibly amend prior year return to get proceeds in a more timely manner) or filing a claim for spoilage of food from your freezer or file a claim for debri removal if caused by a power outage or wind–without having to meet your deductible–depending on your state and the details of your policy.
In addition, if you have a Fannie Mae or Freddie Mac backed mortgage loan (which is a high probability) and you suffered damage as a result of a catastrophe in a federally declared disaster area–you may be able to suspend your mortgage payment for up to 12 months. Even if you have another type of loan it may be wise to review your closing documents or have an attorney help you sort it out to see if you can avoid paying penalty free on your loan for a period of time.
Try to get your bank and other companies that you have financial relationships (Automated Teller Machines, utilities payments, insurance payments etc.) with to waive your penalties for a period of time if you find making payments difficult after a disaster.
Whether you are now recovering from hurricanes Harvey or Irma or facing adversity on other fronts TheWealthIncreaser.com would like to leave you with some encouraging words.
Ironically this site was created due to a weather related incident and it is important that you use your imagination and have your antennae up for inspiration that may come your way in times that appear to be difficult at the moment and in actuality are difficult at the moment.
During times such as those the birthplace of big ideas can be found for those who are looking–and ready to act!
It is also important that you use HUMOR as a major tool to help you cope in times of adversity as by doing so you keep your spirits in “upbeat mode” so that your mind can act in a more appropriate manner during difficult times.
It is the desire of TheWealthIncreaser.com that this discussion has helped you get started on a path to analyzing your insurance needs in a more comprehensive manner and has put you on a path to achieving more during your lifetime without the added stress of unexpected and costly losses and experiencing the dark and empty feeling of not knowing the steps that you can (or need to) take to make your journey toward success much more favorable for you and your family.
All the best to your Insurance Coverage & Wealth Building Success…
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Other helpful sites that may be of benefit in time of disaster:
Frequently Asked Questions About Flood Insurance
National Flood Insurance Program