What’s the Deal with Home Insurance in California?

Home insurance is a policy that nearly all homeowners need to protect them from financial losses in the event their property becomes damaged.

What is Home Insurance

Home insurance is a specific type of insurance that is designed to protect homeowners against losses and damages caused by natural disasters (fires and storms), burglary and vandalism. Home insurance will also cover any legal fees associated with an injury on the insured property.

Earthquake and flood coverage is not typically covered in basic home insurance packages. However, these can be added as additional coverage, especially if the homeowner lives in an area that is in a predetermined flood zone or is susceptible to earthquakes.

Is Home Insurance Required

If a homeowner purchased their property without using a lender, they are not required to have home insurance in California. However, if a property is purchased with borrowed funds, the lender will usually require the homeowner to get home insurance. If the property is in an area that is designated Flood Zone A, the homeowner will also be required to get flood insurance in addition to their home insurance package as well.

Lenders usually require home insurance to protect their assets and minimize the risk of the loan. Lenders require that home insurance match or exceed the loan amount or the replacement cost estimate (the estimated cost to rebuild). Lenders also stipulate the home insurance begins effectively the date that the loan funds not from the date the purchase “closes.” Loans often fund the day before a transaction closes, so accuracy and adhering to the exact close of escrow dates are important.

How Much Does Home Insurance Cost

California homeowners pay on average $974 per year ($81 per month) for home insurance. Home insurance costs vary between cities in California as well as a variety of other factors. According to a Value Penguin study, California’s average home insurance policies are 10% cheaper than the national average.

Factors that Impact Home Insurance Cost

The two factors that have the biggest impact on a homeowner’s cost of home insurance are the size of the deductible and the type of coverage.

The Deductible: A home insurance deductible is the amount of money that a homeowner pays out of pocket towards damages or losses before their insurance provider will cover the claim.

The Premium: The amount that homeowners pay each year for their policy’s coverage.

Deductibles are not paid to insurance companies the same way premiums are. For example, if a homeowner files a claim for $10,000 and has a $500 deductible, the insurance company will send a check for $9,500 – the amount they will cover minus the deductible.

The policy type also impacts the cost to homeowners. If a homeowner adds additional coverage, this will reflect in higher payments and vice versa.

Our expert Mortgage Analysts are knowledgeable about home insurance and are happy to walk homeowners through this process and explain the differences between policy and coverage types. You can contact us at (925) 855-4491, or email us at [email protected]

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