Residential Property Insurance: A Look at Types of Coverages

So your home has been damaged by wind, fire, rain or even a plumbing leak? Upon contacting your mortgage company, you were provided directions for filing a claim with the residential property insurance company. So what type of insurance do you have? Too often, homeowner’s find the coverage, which may or may not be paid from their escrow, does not provide the coverage adequate to repair or replace all of the structural and contents damages. From standard homeowner’s coverage we find several types of other property coverages which may or may not be attached to your monthly mortgage payments. These include homeowner’s, mortgage protection insurance (lender placed coverage), blanket hazard coverage and REO coverage. So, what are the differences?

HOMEOWNER’S COVERAGE
Purchased by the homeowner, and generally escrowed through your mortgage company, a homeowner’s policy is your best investment in protection of your residential property. While homeowner’s policies come with many coverage options, standard policies provide coverage to damages to your dwelling, separate residence structures and contents when the result of a covered peril. A covered peril mayinclude, but not be limited to, wind, rain, hail and snow. Endorsements can be added to the homeowner’s package, at an additional cost to the homeowner, to supplement coverage for mold, animal liability and increase limits of liability. Deductibles vary by dollar amount or may be applied based on a percentage of your policy limits. Without homeowner’s insurance, your dwelling, separate structures and contents are at risk for little to no coverage.

MORTGAGE PROTECTION INSURANCE
Also known as “lender placed” or “lender forced” coverage, Mortgage Protection Insurance (MPI) does provide coverage to your home. Unfortunately, in most cases, the coverage is limited to the dwelling and separate residence structures and does not cover your personal contents. When a home loan is obtained, the homeowner is required to supply proof of homeowner’s coverage. Beyond this time, it is the responsibility of the mortgage company (lender) to monitor the existence of this continuing coverage. Upon notification of a lapse in homeowner’s coverage, the lender may request proof of coverage from the homeowner and, when no coverage exists, the lender purchases Mortgage Protection Insurance (Lender Placed/Forced) coverage to protect their interest in the loan. While the premiums are paid by the homeowner, out of the escrow account, the limits of liability only extend to the balance of the loan. Unfortunately, in claims where damage exceeds the loan balance, the policy limit will be exhausted and the homeowner may be only partially insured for the loss.

BLANKET MORTGAGE HAZARD INSURANCE
Somewhat similar to Mortgage Protection Insurance, Blanket Mortgage Hazard Insurance provides coverage to your lender when a residential property is found to be uninsured under a homeowner’s plan. As with MPI, the coverage is generally limited to the amount of the loan balance and may not provide full protection in cases where personal contents are damaged and/or the structural damages exceed the policy limits. To the lender, this coverage is advantageous as it is a “blanket” coverage, purchased by the lender to protect the mortgage loan, and does not require the lender to monitor the existence of homeowner’s coverage. In other words, under an MPI plan, the lender is required to monitor the existence of homeowner’s coverage and, when found to be lapsed, the lender must force lender coverage into existence. This requires frequent monitoring by the lender. To offset the costs of monitoring, the lender may purchase, at the lender’s expense, a blanket mortgage hazard policy which provides the same level of coverage, at higher premiums, and does not require the lender to “force” the coverage at any time. In addition to the homeowner suffering a disadvantage under this coverage, the lender also suffers a disadvantage as charge back, of the premiums, into the escrow account are not permitted. In other words, the homeowner is not responsible for the premium payments.

REAL ESTATE OWNED POLI CY (REO)
As a homeowner, you should never find your residential property is insured under an REO plan. REO plans are property coverages, secured by the lender, at the time a home forecloses. It is paid by the lender at the time a home is in foreclosure status. If you find your home has foreclosure insurance, an inquiry into the status of your mortgage payments might be in order as it may be an indication that your home is in the foreclosure process.

As a homeowner, it is recommended that you remain diligent in the protection of your assets. With a home as your most valuable asset, guaranteeing you are insured with the right level of protection is a necessity. Contact your mortgage company today and inquire as to the type and levels of coverage currently on your property. Discuss options for improving coverage and ensure deductible levels are such that you will not suffer a financial disaster when a claim needs to be filed. For more information, contact your state’s Department of Insurance office.