People who have purchased a home likely recall the remarkably detailed closing process.
There are many specific requirements that must be prepared ahead of time before sealing the deal.
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The biggest considerations are those homebuyers need to pay for up front.
Although there can be additional expenses, these will almost always include closing costs, a down payment, prepaid interest, property taxes and homeowners insurance.
It's the latter of these that is getting a lot of attention recently.
Damages from natural disasters such as floods, hurricanes and wildfires have been increasing. Carriers that offer homeowners insurance have had to raise rates to stay in business.
Homeowner insurance policies are offered by insurance companies such as Allstate (ALL) -) and Geico, a wholly owned subsidiary of Warren Buffett's Berkshire Hathaway (BRK.A) -).
But as costs for homeowner insurance rise, many current policyholders are tempted to reduce their coverage.
Author and financial advisor Suze Orman has advice
This is not a smart move, says personal finance personality Suze Orman.
"I know budgets may be stretched. But please don’t skimp on your homeowners insurance," Orman recently urged on her blog. "Your home is likely a big part of your net worth. I know it can be tempting to reduce your coverage. That’s rarely a good idea, but certainly doesn’t make much sense given the increase in severe weather events in recent years."
Orman instead implores homeowners to ensure their current insurance provides enough protection.
"The average underinsurance is estimated to be more than 20%. That could end up costing you tens of thousands of dollars if you find out too late that you didn’t have sufficient coverage," Orman wrote.
"At a minimum I want you to have a policy that covers the 'replacement cost' of property damage," she continued. "If you can get a policy with 'extended replacement cost' that's the best choice. In the event you have a major loss, your insurer will consider a payout that is as much as 125% or so of your stated limit with an 'extended replacement cost' policy."
In the past two years, the average homeowner insurance policy has experienced double-digit percentage increases in annual premiums.
"And that's just a national average. Florida homeowners can pay three times as much, on average, and the state’s public insurance program has asked for a 14% increase for next year," Orman wrote.
Orman discussed how natural disasters are likely to take shape differently depending on the region in which a homeowner lives.
"While hurricanes are the big risk in Florida, wildfires are a persistent risk in California (and this last winter, winter floods hit too). Across the Midwest and South, there were already 10 weather-related losses through June this year that caused at least $1 billion in damage. In July, areas in the Northeast were hit with devastating flooding from fierce rainstorms," Orman wrote.
"On top of the increased risk from weather-related damage, insurers are also reeling from rising construction costs caused by supply chain problems," she added. "That increases the cost of claims. We can only hope the recent cooling in inflation will help keep those costs from continuing to climb."
The bestselling author told her readers she understands that the homeowner insurance situation is currently difficult, but stressed the importance of following her advice.
"I realize boosting your coverage means finding more cash to cover the added expense. And that may not be easy. I get it. All I ask is that you make it a top priority in your financial life," Orman wrote.
"When it comes to protection, especially protecting such a valuable asset, we can hope for the best, but our financial security depends on planning for the worst. Please do your best not to skimp on your homeowners insurance."
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