The Importance of Homeowners Insurance and Security

As the day of closing draws closer, you realize how expensive home ownership can be. Is there anyone in the last two weeks who hasn’t received a check from you? (And it has been a check, not a credit card number, because you don’t want to mess up your credit at the last second.)

As expensive as your home purchase seems, one or two additional purchases will need to be made to protect this very important asset.

Homeowners insurance isn’t just a good idea, but in cases where home buyers are borrowing money from a bank or other financial institution, it is required.

But before you take your mortgage holder’s requirement verbatim and write out a check for insurance, you should know what you are getting, says Lilian Cabrera, an Oakland-based insurance agent.

“We don’t insure the land,” Cabrera explains. “Under most circumstances, your land isn’t going to go anywhere,” she adds, which is why insurance companies don’t insure the portion of the home’s value that represents the property. In the event of robbery or fire, your home is still there.

In the few instances where land could disappear – such as during an earthquake or tsunami – special insurance, purchased separately from a standard homeowners policy, would cover the calamity (earthquake or flood insurance, respectively).

However, Cabrera says some lenders still try to get home purchasers to insure the entire amount of a loan, which includes land. For example, if a lender is providing a $500,000 mortgage on a $500,000 house, part of that mortgage is covering the land. Therefore, the insurance should not be for $500,000, but for the amount required to rebuild the house.

“There is actually a law that forbids lenders from requesting this,” Cabrera notes.

That law is California Civil Code section 2955.5(a), which begins, “No lender shall require a borrower, as a condition of receiving or maintaining a loan secured by real property, to provide hazard insurance coverage against risks to the improvements on that real property in an amount exceeding the replacement value of the improvements on the property.”

Cabrera says home purchasers should understand what it would cost to rebuild their home in terms of square feet. “The typical home costs from $120 per square foot to $150 per square foot to rebuild,” she explains. “Custom homes might go a little higher, ranging from roughly $150 to $170 per square foot.” This knowledge, she notes, helps them insure their home for the correct amount, and helps them avoid paying unnecessarily high premiums.

Home purchasers can also save on their insurance by installing a security system. “There are two primary groups of people interested in buying a security system,” says Dave Steinberger of ACA Security Systems of Fremont. “People who have just bought a home and people who just got broken into.”

Of course, Steinberger would prefer customers in the former category, purchasing a system when they purchase their home, so that they can avoid the latter.

Steinberger notes that one of the biggest untruths about security systems is that they are only required in high-crime neighborhoods, or that the general wealth or prosperity of a neighborhood somehow inoculates the home buyers from a break-in.

But Steinberger points out that that is precisely where many burglars will go. “The nicer neighborhoods – that’s where I would want to go if I want to rob somebody.”

ACA Security Systems provides additional services, too, such as fire detection, as it not only protects your home, but your family. “Smoke doesn’t make any noise. You can’t see it in the dark,” he says. “By the time a non-monitored signal makes a noise, you may already be weakened by the fire and smoke,” he explains.

As part of a cutting-edge security company that focuses on its customers’ needs, ACA works to eliminate problems and barriers.

Remember the Partridge Family episode where they couldn’t get an alarm to work correctly? Such experiences are the stuff of suburban legend, and have been for decades.

But Steinberger’s company avoids that. As the person responsible for R&D for the company, he is always on the lookout for the most sophisticated and effective systems that are the simplest to operate. “We also have our technicians teach customers so they know how to use it easily. If people aren’t comfortable with their system, they won’t want to use it.”

The company was handed a very different challenge earlier this year, when the Fremont Police Department said it would no longer respond to private alarms. To protect their customers, ACA Security hired a private patrol company to respond to their Fremont customers, at no additional cost to the clients.

While the company also offers video surveillance at an additional cost, Steinberger is sensitive to the additional outlay for home buyers who are already feeling overwhelmed. “I’m always on the lookout for insurance companies that offer a high discount for fire and theft systems,” he explains. “Sometimes, the savings alone on insurance premiums can pay for the cost of the system.”