Buying Home Insurance Before Closing?

Should you be buying home insurance before closing? I certainly think so, but let me explain why I think that it is better to have home insurance on closing, and see if you agree.

In this article I will cover:

1. Is it required?
2. Why it is important?
3. What are the steps? How long does it take?
4. When is the best time to look for home Insurance?
5. Quick Home Insurance Calculator.

1.  Is It Required?

It is often a requirement of a lender or bank to have home insurance as a condition of a mortgage. For most people the answer will be yes.

Home insurance is not a requirement to purchase a property, either in Canada or the United States. Having said that, some municipalities do require you to have your home insured - you do need to check with local authorities.

Is buying home insurance a good idea? I think so. Even when I had bought properties cash outright (with no initial mortgage on closing), I still had the property insured for the closing date. 

Which bring us to the next question….

2.  Why Is It Important?

Buying home insurance before closing, or at all for that matter, is important for several reasons in my opinion:

1. It protects your investment - Do you have the deep financial pockets to repair serious damage from bad weather, vehicles, or vandalism? If you had to think about it, then you probably would be better to pay a small amount each month for the insurance (and sleep at night), rather than a huge amount when bad luck strikes. If you think the “vehicles” part is a joke, you should know that I have two acquaintances, one friend and a close relative who had vehicles hit their homes (one was in fact a bus). I would guess we could probably start an entire page on vehicles versus homes.
2. Home insurance also provides liability coverage in case some one decides to sue you because they were injured on your property, or perhaps something on your property caused damage to another person or property. 
3. Liability coverage comes with most if not all home insurance products. It would cover the legal fees as well as any damages for lawsuits.
4. Municipalities which require homes to be insured, will also have hefty fines for non-compliance. Again check the local laws. 
5. Knowing that your home is insured alleviates one major stress when an unforeseen even occurs. Peace of mind is not a bad reason.

The likely reason lenders or banks require insurance is because they do not need the additional risk beyond what they have agreed to loan you for the purchase. Requiring home insurance on closing is usually a condition for most if not all lenders.

3.  What are the steps and how long does it take?

Good question! Here is a quick over view of the steps, and the main reason this is important, is because you have to understand what the steps are before you can answer your real question - “How long does it take?”:

1. Determine the coverage you need: What is the likely total purchase price. In addition it will be useful to be able to identify some key features they may ask you for - location, closest fire station, is it near a flood zone, etc.
2. Shop around for potential insurance brokers: Once you know what type and amount of coverage you need, it's time to find different insurance providers. Try to find brokers who are local to the area where you are looking (in the same city for example).
3. Compare quotes: Once you have several initial quotes, compare them to see which provider offers the best coverage and rates. Don't just look at the price, but also consider the coverage options, deductibles, and any exclusions or limitations.
4. Choose a provider: After comparing quotes, choose an insurance provider that offers the coverage you need at a price you can afford. You may also want to consider factors such as the provider's reputation, customer service, and financial stability.
5. Fill out an application: Once you've chosen a provider, you'll need to fill out an application for home insurance. This will typically require you to provide information about your home, such as its age, construction materials, and any previous insurance claims.
6. Review your policy: Before finalizing your purchase review the policy carefully to make sure you understand the coverage, deductibles, exclusions, and any other terms and conditions.
7. Provide payment: After you've filled out the application and been approved for coverage, you'll need to provide payment for your policy. This could involve paying an annual premium upfront, although usually it consists of making monthly payments.
8. Obtain proof of insurance: Finally, make sure to obtain proof of insurance, such as an insurance binder or policy declarations page, which you'll need to provide to your lender and/or closing agent to prove that you have insurance in place before closing on your home purchase.

** To see the over-all Steps On Buying A Home for a bigger picture view, click this link!

4.  When is the best time to look for home insurance?

Since you will likely need to be buying home insurance before closing, the obvious answer is...you guessed it...before closing - which I know is not helpful, but let’s start there and work backwards...

The previous section discussed the typical steps, and that should have given you an idea of why it might be a good idea to start looking at insurance earlier than later - at least if you would like a reasonable cost. If you skipped over #3 above, maybe just have a quick look now.

Shopping around around for an Insurance Broker and getting some preliminary quotes can take a week or two depending on how much time you can dedicate to contacting companies and sending them the information they might require of you to get an initial quote. 

When we invested in properties in Arizona, we spent some time chatting with different brokers and getting ball park quotations based on the type of house we were placing offers on at the time. We also did as much as we could to research the companies and compare the various coverages. We ended up choosing a broker based on how knowledgeable they were on the local market as the quotes did not vary that much and we appreciated more the detailed advice she provided on what to watch out for that was specific to the area.

Bottom line - give yourself a 2-3 weeks to find a good Insurance Broker. You will likely need a minimum of 1 week. It can be done in a couple of days if you are really under the gun, but as the old adage goes - “garbage in, garbage out” and if you are rushed you may end up paying more than you could do.

In addition, you will need at least 5 business days to get a firm quote once you have an accepted offer. Allow a few days if you can for back and forth on some of the property details so you can get an accurate quotation. 

** To revisit, or discover, how the best time to look for Home Insurance fits in to the home buying process timeline in general, click this link!

5. Home Insurance Calculator

I have found some links to Home Insurance Calculators which might give you a starting idea on potential costs. Nothing beats doing your own research using actual insurance brokers however, and you are better to reach out to one of those professionals.

1. Homes in the United States:

Forbes has a good calculator organized by state. Click this link to bring you to the "Forbes Advisor - Homeowners Insurance Calculator".

2. Homes in Canada:

I was able to find this plug-in to estimate costs for Homeowners Insurance in Canada:

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