What is the purpose of each of my home insurance policies?
If you’ve ever been party to a home transaction, you’ve encountered several different types of insurance. There’s title insurance and mortgage insurance — and homeowner’s insurance is also mentioned at closing. But what are the purposes of these distinct types of insurance? Is each required?
Here’s a look at the three different types of insurance involved in a home transaction, the importance of each and the differences between them.
1. Title Insurance
A title review is designed to uncover any liens or encumbrances tied to a property being sold. A purchaser acquires title insurance to protect him or her from any unexpected burdens that went undetected during the title review. Given that a home transaction represents a six- or seven-figure investment for the purchaser, title insurance is an important purchase that provides full protection for that significant investment.
2. Mortgage Insurance
If you’re struggling with understanding the differences between mortgage vs. title insurance, you’re not alone. There are two primary types of mortgage insurance:
- Private Mortgage Insurance: This type of insurance is often required when a buyer makes a down payment of less than 20 percent. Private mortgage insurance protects the lender from losses if the buyer defaults on the loan. Some special lending programs allow buyers to skip private mortgage insurance even if they make a down payment of less than 20 percent. In these cases, the program backs the loan so that mortgage insurance isn’t required.
- Mortgage Protection Insurance: A buyer can secure mortgage protection insurance to help cover mortgage payments in case of unemployment, disability or death. This is a crucial decision, and it’s often helpful to consult a financial advisor before deciding whether mortgage protection insurance is for you. As for private mortgage insurance, you don’t get a choice — your lender will either require it or not.
3. Homeowner’s Insurance
Homeowner’s insurance is the policy that protects the home itself after purchase. As you shop for homeowner’s insurance, be sure to understand what situations policies cover and what they do not. For example, in Florida, you may need an additional policy to protect against hurricanes and any resulting damage.
In many cases, homeowner’s insurance policies also protect private property and protect against personal liability. Again, be sure to read the fine print and gain a full understanding of what your homeowners’ insurance policy actually covers.
Make Sure Your Closing Goes Smoothly
At Title Partners of South Florida, we specialize in providing title mortgage definitions and facilitating surprise-free closings. We have the experience and knowledge to ensure the final stages of a home transaction go exactly according to plan. Enjoy a surprise-free and smooth closing experience by choosing Title Partners of South Florida.