Insurance and Taxes
5 Things to Know About Title Insurance
- Title insurance protects the holder from any losses sustained from defects in the title. It’s required by most mortgage lenders. Here are five other things you should know about title insurance.
- It protects your ownership right to your home, both from fraudulent claims against your ownership and from mistakes made in earlier sales, such as mistake in the spelling of a person’s name or an inaccurate description of the property.
- It’s a one-time cost usually based on the price of the property.
- It’s usually paid for by the buyers, although this can vary depending on your state and local customs.
- There are both lender title policies, which protect the lender, and owner title policies, which protect you. The lender will probably require a lender policy.
- Discounts on premiums are sometimes available if the home has been bought within only a few years since not as much work is required to check the title. Ask the title company if this discount is available.
5 Things to Know About Homeowner’s Insurance
- Know about exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These types of coverage must be bought separately.
- Know about dollar limitations on claims. Even if you are covered for a risk, there may be a limit on how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.
- Know the replacement cost. If your home is destroyed you’ll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you’ll only receive $150,000.
- Know the actual cash value. If you chose not to replace your home when it’s destroyed, you’ll receive replacement cost, less depreciation. This is called actual cash value.
- Know the liability. Generally your homeowner’s insurance covers you for accidents that happen to other people on your property, including medical care, court costs, and awards by the court. However, there is usually an upper limit to the amount of coverage provided. Be sure that it’s sufficient if you have significant assets.
Tips for Lowering Homeowner’s Insurance Costs
- Review the Comprehensive Loss Underwriting Exchange (CLUE) report on the property you’re interested in buying. CLUE reports detail the property’s claims history for the most recent five years, which insurers may use to deny coverage. Make the sale contingent on a home inspection to ensure that problems identified in the CLUE report have been repaired.
- Seek insurance coverage as soon as your offer is approved. You must obtain insurance to buy. And you don’t want to be told at closing that the insurer has denied your coverage.
- Maintain good credit. Insurers often use credit-based insurance scores to determine premiums.
- Buy your home owners and auto policies from the same company and you’ll usually qualify for savings. But make sure the discount really yields the lowest price.
- Raise your deductible. If you can afford to pay more toward a loss that occurs, your premiums will be lower. Avoid making claims under $1,000.
- Ask about other discounts. For example, retirees who tend to be home more than full-time workers may qualify for a discount on theft insurance. You also may be able to obtain discounts for having smoke detectors, a burglar alarm, or dead-bolt locks.
- Seek group discounts. If you belong to any groups, such as associations or alumni organizations, they may have deals on insurance coverage.
- Review your policy limits and the value of your home and possessions annually. Some items depreciate and may not need as much coverage.
- Investigate a government-backed insurance plan. In some high-risk areas, federal or state government may back plans to lower rates. Ask your agent.
- Be sure you insure your house for the correct amount. Remember, you’re covering replacement cost, not market value.
5 Property Tax Questions You Need to Ask
- What is the assessed value of the property? Note that assessed value is generally less than market value. Ask to see a recent copy of the seller’s tax bill to help you determine this information.
- How often are properties reassessed, and when was the last reassessment done? In general, taxes jump most significantly when a property is reassessed.
- Will the sale of the property trigger a tax increase? The assessed value of the property may increase based on the amount you pay for the property. And in some areas, such as California, taxes may be frozen until resale.
- Is the amount of taxes paid comparable to other properties in the area? If not, it might be possible to appeal the tax assessment and lower the rate.
- Does the current tax bill reflect any special exemptions that I might not qualify for? For example, many tax districts offer reductions to those 65 or over.