Unlike auto insurance, homeowners insurance isn't required by law. If you own a home and want to gamble that nothing bad will happen to it, the government isn't going to make you buy an insurance policy. But, if you're borrowing money to buy a home, you can rest assured the lender will require you to have homeowners insurance by the time you take possession.
When to Buy
The only way an insurance company can determine coverages and premiums is if it knows exactly what its insuring. So, the time to buy homeowners' insurance is after you've reached an agreement to buy a home, but before you close the deal. Prior to finding a home, you can certainly talk with insurance agents about the kinds of services they offer. However, until you have a specific home to talk about, there's not much more an agent can do for you.
Once you've had an offer accepted on a home, it's time to shop around for insurance. Insurers will want to know all kinds of details about the house, like its value, size, appraised value and so on -- so be prepared to give them a lot of facts. This allows the insurer to set the amount of your coverages and the price of your premiums will be. It can take a few days to get all the I's dotted and T's crossed on an insurance policy, so don't put it off until the last minute.
Proof of Coverage
So you've shopped for insurance and found a policy that works for you. Now you have to pay for it. Mortgage lenders typically want a year's worth of premiums in advance and produce evidence of coverage. That evidence is usually a declarations page or a "coverage binder" prepared by the insurer and sent to the lender, or given to you to take to the closing. The insurance policy will typically name you and your lender as the insured parties. After all, if you're like most home buyers, the lender starts out "owning" much more of the house than you do.
At the closing of the sale, expect to sign an agreement to keep the property insured. Lenders have a way of making sure you do this: They collect money from you as part of your monthly house payment, hold that money in an escrow account until the next insurance bill comes due, and then use it to pay the bill. Lenders handle your property taxes the same way.
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.