Types of Real Estate Insurance
There are several types of Real Estate Insurance. The term is used to cover types of coverage connected to the Real Estate Industry and to separate in from the Life Insurance and Automobile Insurance sectors.
There are several types of Real Estate Insurance, and the policies available are designed for the benefit and protection of all the parties to a real estate transaction. A complete real estate transaction involves a builder, a lender, a seller, and a buyer. It is possible that a single entity might assume more than one role, but all roles can be considered separately. Each of them incurs different risks and it is the purpose of Real Estate Insurance, as with all Insurance, to act in a risk reduction capacity.
In Life Insurance, when you take away the income producing and investment aspects, the risk reduction factor is seen as the protection of those left behind in the case of your untimely death. The risk is that they will be unable to survive or maintain their standard of living in the case of your death. Real Estate Insurance for the buyer is similar in concept to this. The type of Real Estate Insurance commonly called Mortgage Insurance is basically a life insurance policy that pays off the existing mortgage loan in the case of the death and sometimes the disability of the buyer.
This type of Insurance benefits the seller and, most importantly, the lender, also. It is normally required by a lender as part of the Mortgage contract as long as the equity value of the house is below a certain percentage of the remaining loan balance. This protects the lender from the loss and expense associated with defaults and foreclosures, but also protects the buyer. In the case of the buyer’s untimely death, the mortgage is paid and his survivors and family do not lose their home.
Other types of Real Estate Insurance are geared more towards what is called indemnification. This concept is protection against loss or injury and in insurance usually requires that a definite loss be incurred. The insurance covers the loss itself rather than the potential loss as in Life Insurance. One example is Homeowners Insurance, or Property Insurance. This type of policy exists to replace “things” lost in case of fire or theft. The ability to document the exact nature of the loss is always the important issue in such a policy.
Two other types of Real Estate Insurance are Title Insurance and Developer’s Insurance. Title Insurance is protection against loss in the real estate transaction due to a problem establishing clear ownership or easement of the property. It is common in the United States because the United States follows a less sure method of recording land transfers and deeds. Developer’s Insurance, or Finance Insurance, is a risk reduction type of insurance that protects the investment of the developer and provides indemnity protection against liability losses as well.