Do I need really need home insurance?
Does a person really need to have home insurance when they are purchasing a property? If they aren't using another person's funds (mortgage) to pay for the property, then the answer is no. However, if you want to protect your asset from either small or catastrophic loss and anywhere in-between, you better be damn sure you find home insurance. For the lazy at heart, as I stated I am, do I really need to do all the grunt work? Find quotes, compare policies, etc.? Why don't I just have the lender force place insurance on me? Won't that take care of the insurance requirement and me? The answer is yes, and several big No's as well!
Forced place home insurance is a bad idea. The first negative about forced placed home insurance is the definitions enclosed in an insurance policy. Usually, the first term defined in the contract is You. You typically refers to the person or business named in the declaration as an insured. People assume that the forced placed insurance policy names the borrower as You but this is hardly the case. Normally, the insurance company names the mortgagee (typically a bank) as You. Meaning that the person residing in the home, has little to no coverage under this lender placed policy! Kinda stinks!
Second, the mortgagee typically forces the borrower to pay for the home insurance. As referenced above, the borrower typically has no coverage under the forced place insurance. Therefore, the borrower is the sole person footing the bill protect the bank's asset. I can take the opposite viewpoint of stating that it's only right that the borrower pay for it since he's the one living in there. However, the borrower is already paying interest on the loan (a fee for using the banks money) and the amortization schedule finds the borrower normally heavily paying this interest in the beginning of the loan process. Seems to me the mortgage company is putting the screws to the borrower.
Third, there are options now for clients. I live in California and serve in a high wild-fire area of the state. Many carriers are opting to pull out of the market but there are still a few that are writing home insurance in this area. Also, our state has the California FAIR plan. The FAIR plan is a syndicate formed by all the property insurers in California. Although the FAIR plan doesn't cover everything a normal home insurance would, many carriers are writing a Difference in Conditions (DIC or Wrap-around) policy design to round out the coverage not given by the FAIR plan and give insureds a pretty good combination of coverage. While not the greatest option, it still names the borrower as You and that means that the borrower receives all the benefits granted to an insured inside of the policy!
Curious to know if there's other types of insurance getting just as bad a wrap as home insurance in California? If anyone knows of anything, please share below!
-Dwight Bentz