An insurance checklist for first-time homebuyers

A first purchase puts the home policy on a deadline. The lender will not fund without proof of insurance, the title company wants a binder several days before closing, and the buyer is usually asked for it in the same week they are choosing a locksmith. The result is a policy bought in a hurry, sized to the purchase price, and never read.

This checklist is meant to be worked through in order, starting when the offer is accepted rather than the week of closing. It covers what the lender requires and what it does not, how the dwelling limit should be set, the endorsements a house in the Southwest and Intermountain West commonly needs, the timing traps around the binder and escrow, and the two existing policies, auto and renters, that change the day you get the keys.

What the lender requires, and what it does not

A mortgage lender requires a hazard policy that names it as mortgagee, with a dwelling limit at least equal to the loan balance or the replacement cost, whichever its guidelines specify, and a deductible below a ceiling it sets. It also requires flood insurance if the house sits in a mapped special flood hazard area. If the borrower lets the policy lapse, the lender buys force-placed coverage that insures the lender's interest only, at a premium billed to the borrower, and that coverage pays nothing for contents or liability.

That is the whole list. The lender does not require liability coverage, contents coverage, loss of use, water backup, extended replacement cost or earthquake, and it does not check whether the dwelling limit would actually rebuild the house. Everything beyond the mortgagee's interest is the buyer's decision, and it is the part of the policy that decides what happens after a fire.

Order of operations from accepted offer to closing

Roughly four weeks, in the order that avoids surprises.

• The week the offer is accepted: send the address, year built, square footage, roof age and type, and the inspection date to your agent. Quotes are ordered from that, and a roof that is near the end of its life or a house with old wiring changes which carriers will write it.
• After the inspection: share the report. Items the inspector flagged, especially roof, electrical panel, plumbing and a wood stove, are the same items an underwriter will ask about, and a repair negotiated with the seller now avoids a conditional policy later.
• Two weeks out: choose the carrier and the limits, confirm the mortgagee clause wording and the loan number with the lender, and decide whether the premium is paid through escrow or directly.
• One week out: the binder or evidence of insurance goes to the lender and the title company, dated to be effective at closing. A binder is a temporary contract; the policy that replaces it should arrive within weeks, and the declarations page should be read when it does.
• Closing day: coverage is effective. If closing slips, the effective date on the binder must be moved with it; a binder that starts before you own the house insures nothing.
• Within the first month: expect an exterior inspection by the carrier, and act on any letter it produces. A requirement to trim a tree or replace a handrail has a deadline, and ignoring it is how a new policy is cancelled in its first term.

Sizing the dwelling limit: rebuild cost, not price

The purchase price includes the land, the lot's location and whatever the market was doing that month. None of that burns. The dwelling limit should be the cost to rebuild the structure with today's labor and materials, which the carrier estimates from the house's characteristics and which can be higher or lower than the price paid. In a fast market a house can sell well above its rebuild cost; in a rural county with few contractors, rebuild cost can exceed what the house would sell for.

Suppose a first-time buyer pays $450,000 for a house in Mesa, and the carrier's estimator puts the rebuild cost at $320,000. Insuring at the purchase price would overpay for a limit the carrier would never pay out in full, since it pays to rebuild, not to repurchase. Insuring at the estimator's $320,000 and adding an extended replacement cost endorsement that allows a further $64,000 if the estimate proves short is the better shape. After a regional fire or hailstorm, contractor prices rise for a season, and that extension is what absorbs it. The figures are illustrative; the estimator, not the listing, sets the number.

The endorsements a first house usually needs

A base policy form leaves out several things a new owner assumes are in. Each is a line item on the quote, and each is worth a decision rather than a default.

• Extended or guaranteed replacement cost on the dwelling, so a short estimate does not become your problem.
• Replacement cost on contents, instead of actual cash value, so a claim pays for a new sofa and not a depreciated one.
• Water backup, for sewer and drain backups, which the base form excludes and which is a routine loss in older neighbourhoods with clay laterals.
• Ordinance or law coverage, which pays the extra cost of rebuilding to current code when an older house is damaged; a house built before modern electrical and energy codes cannot legally be put back the way it was.
• Scheduled personal property for an engagement ring, instruments or cameras, which the base form caps at a low sublimit for theft.
• Service line coverage, for the buried water, sewer and electrical lines between the street and the house, which are the owner's responsibility and not the utility's.

Flood, earthquake and the perils outside the policy

Surface water is excluded on every standard home form and is insured separately through the National Flood Insurance Program or a private flood carrier. A lender requires it only in a mapped high-risk zone, but the map is a lending tool, not a forecast. In Arizona the question is whether the lot sits beside a wash or at the bottom of a slope that sheets during the monsoon. In Idaho and northern Utah it is spring snowmelt and rivers that rise for weeks. A new flood policy carries a waiting period before it responds, so it is bought at closing or not in time for the first storm.

Earthquake is also excluded and separately insured. It matters along the Wasatch Front in Utah, where the fault runs under the populated valley, and in parts of Nevada and Idaho; it matters less in most of Arizona. Earthquake policies carry a percentage deductible on the dwelling limit rather than a flat amount, so the policy responds to a serious event and not a cracked wall. Wildfire is a covered peril on a standard form, but a house in the wildland-urban interface near Flagstaff, Prescott, Park City or the Boise foothills will be inspected for defensible space, and a carrier may decline or condition the policy on it.

Escrow, renewal and the first year's traps

When the premium is paid through escrow, the lender collects it monthly and pays the carrier once a year. The convenience hides a risk: the carrier bills the lender, and if the lender's records carry the wrong loan number or the policy has been replaced mid-year, the bill goes unpaid and the policy lapses without the owner seeing an invoice. Check the escrow analysis the lender sends each year against the declarations page, and tell both the lender and the agent whenever either the loan or the policy changes.

The first renewal is also where the premium moves. The carrier now has an inspection, a year of claims history and a fresh rebuild estimate, and the second-year figure is the one to compare against the market. A claim in the first year for a small loss, a stolen bicycle from the garage or a cracked window, is generally not worth filing against a new policy; the deductible absorbs most of it and the claim follows the house.

Your auto and renters policies change too

The renters policy ends at closing, not at lease end, and the contents and liability it carried move to the home policy the same day; cancelling early is normal, and the unused premium is refunded. Keep it in force until the day you actually move if the two dates differ, since a couch in a truck between addresses is covered by whichever policy is live.

The auto policy needs the new garaging address, which changes the premium because rating territory, commute and the carrier's view of theft and hail risk all move with it. A new mortgage is also the moment to look at liability limits on the auto policy: home equity is now an asset a judgement can reach, and a modest umbrella policy over auto and home usually costs less than the increase in exposure it covers. Utah drivers keep the personal injury protection component of their policy regardless of address; drivers moving into Arizona, Nevada or Idaho from a no-fault state lose it and should check that medical payments coverage replaces it.

How to use this

Bring the address, the inspection report, the lender's mortgagee clause and the closing date. From that we quote the home policy across the carriers we represent, size the dwelling limit from a rebuild estimate rather than the price, flag flood and earthquake where the lot warrants it, and re-rate the auto policy at the new address so the binder and the closing land on the same day. If the quote you were handed by the lender's preferred source is already right, that is what we will say.