PI-100 (R 07/2024)
Consumer’s Guide to
Insurance Needs When Buying a Home
Your insurance needs to change when you buy a home and it's not just homeowners insurance. Learn about
homeowners insurance, private mortgage insurance, title insurance, flood insurance, and other insurance options to
consider.
Wisconsin Office of the Commissioner of Insurance
125 South Webster Street, P.O. Box 7873, Madison, WI 53707-7873
p: 608-266-3585 | p: 1-800-236-8517 | f: 608-266-9935
ociinformation@wisconsin.gov | oci.wi.gov
Disclaimer
This guide is intended as a general overview of current law in this area but is not intended as a substitute for legal advice in any
particular situation. You may want to consult your attorney about your specific rights. Publications are updated annually unless
otherwise stated and, as such, the information in this publication may not be accurate or timely in all instances. Publications are
available on OCI’s website at oci.wi.gov/Publications
. If you need a printed copy of a publication, use the online order form
(oci.wi.gov/Pages/Consumers/Order-a-Publication.aspx) or call 1-800-236-8517. One copy of this publication is available free of
charge to the general public. All materials may be printed or copied without permission.
File a Complaint
If you have a specific complaint about your insurance, refer it first to the insurance company or agent involved. If you do not
receive satisfactory answers, contact the Office of the Commissioner of Insurance (OCI).
• Reach out to OCI (1-800-236-8517, ocicomplaints@wisconsin.gov) to speak with our staff. If sending an email, please
indicate your name and phone number.
• File a complaint with OCI. You can file a complaint online at oci.wi.gov/complaints. If you would like to file your complaint
by mail, visit oci.wi.gov/complaints, email ocicomplaints@wisconsin.gov, or call 1-800-236-8517 for a form.
PI-100 (R 03/2023) 2
Contents
Introduction ........................................................................................................................................................................................................................................... 2
Homeowners Insurance ..................................................................................................................................................................................................................... 2
Buying Homeowners Insurance ................................................................................................................................................................................................ 3
Lender-Placed Insurance................................................................................................................................................................................................................... 3
The Wisconsin Insurance Plan ........................................................................................................................................................................................................ 4
Private Mortgage Insurance (PMI) ................................................................................................................................................................................................ 4
Title Insurance ....................................................................................................................................................................................................................................... 5
Types of Title Insurance ............................................................................................................................................................................................................... 5
Do I Need Both Types of Coverage? ...................................................................................................................................................................................... 6
Buying Title Insurance .................................................................................................................................................................................................................. 6
Cost of Title Insurance .................................................................................................................................................................................................................. 6
Exceptions and Exclusions .......................................................................................................................................................................................................... 6
Alternatives to Title Insurance ................................................................................................................................................................................................... 7
Federal Housing Administration and Veterans Administration Mortgages................................................................................................................. 7
Flood Insurance .................................................................................................................................................................................................................................... 7
Insurance Marketing ........................................................................................................................................................................................................................... 8
Consumer Buying Tips ....................................................................................................................................................................................................................... 9
Problems with Insurance ................................................................................................................................................................................................................... 9
Introduction
Purchasing a home can be overwhelming and stressful. The more you know and understand the process, the less
stressful it will be. For most people, a home is more than just a roof over their heads, it’s also their most valuable asset.
That’s why it is important to insure it properly. This publication discusses some of the insurance
requirements and costs
associated with purchasing a home.
Homeowners Insurance
Homeowners insurance is a package policy providing property insurance protection to your home and personal
belongings and liability insurance protection to you and your family members if you are found negligent for injury or
property damage to someone else. Most lenders require you to carry enough homeowners insurance to cover the
amount of your mortgage. This may be either too little or too much
coverage for your individual needs. If there is
damage or destruction to the property, and you do not have enough homeowners insurance, the lender’s investment
may be the only portion covered. This may pay off the mortgage, but you will lose any money you invest.
Generally, your lender requires you to have a homeowners insurance policy in force at the time of closing. Your lender
will usually request a copy of the policy and cover page showing coverage amounts.
Your lender will also require you to name the lending institution as a loss payee (i.e., protects the lending institution in
case of loss). You are not required to purchase insurance from the insurer recommended by your lender. However, if
PI-100 (R 03/2023) 3
you fail to keep your coverage in force, the lending institution will purchase coverage protecting its interest and you
may have to pay for this coverage. This type of coverage is typically more expensive than an insurance policy you may
purchase and provides less coverage.
Buying Homeowners Insurance
Before buying homeowners insurance, you need to understand the difference between “replacement cost” and “actual
cash value.”
Replacement cost is the amount it would take to replace or rebuild your home or repair damages with materials of
similar kind and quality, without deducting for depreciation
. Depreciation is the decrease in home or property value
since the time it was built or purchased because of age or use.
Most homeowners insurance policies contain replacement cost coverage on the home and actual cash value coverage
on personal property
. To qualify for full replacement cost coverage, the building is required to be insured at 80% to
90% of the replacement cost. The amount of replacement cost coverage available is limited to the amount of insurance
you choose to buy. The coverage amount is stated on the
declarations page of your policy.
It is important to discuss with your insurance agent the appropriate coverage amount for your situation.
If you purchase an amount less than 80% to 90% of the amount required to have replacement coverage, your insurance
company will not be obligated to pay the total amount of loss to your home even if there is a small loss. The “loss
settlement” section of your policy explains how the settlement is calculated.
Do not confuse replacement cost with market value
. Market value is a real estate term describing the current value of
your home if you were to sell it, including the price of the land.
Most homeowners insurance policies include an inflation guard. This automatically increases the value of your policy as
the value of your home increases. Even with an inflation guard, homeowners should check with their insurer periodically
to determine whether their home is fully insured.
Actual cash value is the value of your property when it is damaged or destroyed. This is usually figured out by taking
the replacement cost and subtracting depreciation. Contents coverage (i.e., furniture, computers, television sets, and
appliances) is usually calculated on an actual cash value basis. For example, a $500 chair may have a reasonable “life
span” of 20 years. If it is destroyed after 10 years, due to depreciation its actual cash value will be much less than $500.
Most policies pay for losses to your contents on an actual cash value basis, but a better option is replacement cost
coverage. Although the cost is higher, in most cases, the extra protection may be worth it. Replacement cost coverage is
available for an additional premium
.
Lender-Placed Insurance
If you have a mortgage, your lender will require you to have a homeowners insurance policy to protect the property
from loss. Usually, the lender will collect information on your homeowner’s policy in order to verify coverage is in place.
If the lender finds you do not have coverage, they may work with an insurer to issue an insurance policy to protect the
lender’s interest. The lender will add the cost of the policy to your mortgage bill.
These policies, known as lender-placed policies, are usually much more expensive than a homeowner’s policy you could
have purchased. These policies are also written to protect the lender’s interest in your property and not the interests of
the homeowner. It is important for a homeowner to replace the lender-placed policy with their own policy as soon as
possible. If you changed coverage and did not notify your lender, you should provide them with policy information.
Most lender-placed insurance policies will provide a refund of premiums if the consumer can show coverage was
already in place.
PI-100 (R 03/2023) 4
The Wisconsin Insurance Plan
If you try several insurers and cannot find coverage, you most likely can be insured through the Wisconsin Insurance
Plan (WIP). WIP is a risk-pooling arrangement in which all companies selling property insurance in the state share the
risk of insuring homeowners who have difficulty getting coverage with regular insurance companies.
WIP provides basic insurance coverage for the properties it insures including damage from fire, wind, vandalism, vehicle
damage, and theft. Other causes of loss are also covered. Homeowner policies include personal liability coverage.
All properties insured by WIP must first be rejected for coverage by a licensed insurance company. When a property is
rejected, the owner is notified of the existence of WIP. All licensed agents must assist a property owner in applying to
WIP. However, WIP does not have sales agents.
WIP is property insurance of the last resort. Consider WIP only if you cannot obtain insurance from any other insurance
company.
For more information on the WIP, contact WIP at:
Wisconsin Insurance Plan
2115 10
th
Avenue, Suite 201
South Milwaukee, WI 53172
(414) 291-5353 Phone
(414) 291-5365 Fax
wisinsplan.com
OCI has a publication explaining the basic coverages included in homeowners and renters insurance policies, the types of
policies, what you should do if you have a loss, and the Wisconsin Insurance Plan. The publication Consumer’s Guide to
Homeowners Insurance is available on OCI’s website at oci.wi.gov/HomeGuide
or by calling 1-800-236-8517.
Private Mortgage Insurance (PMI)
Private mortgage insurance is a type of insurance to protect lenders against losses due to borrower default and
subsequent foreclosure on the home. This protection is provided by private mortgage insurance companies and allows
lenders to accept lower down payments than would normally be allowed.
When deciding if a mortgage loan should be made, a lender wants to make sure that the property in question can be
sold without a loss in the event the borrower defaults. If a borrower applies a down payment of 20%, the lender only
has to lend 80% of the property’s value. If the lender had to foreclose on the property and sell it for 80% of its value,
the lender would not lose any money.
Private mortgage insurance is used with conventional financing only. A conventional mortgage
is a loan not obtained
under a government-insured program. Conventional mortgage loans are typically held by institutional investors such as
Fannie Mae, Freddie Mac, banks, or insurance companies.
Private mortgage insurance is usually paid by the home buyer but the lender is the insured and receives any insurance
benefits. If the lender pays for the private mortgage insurance, they will generally pass the cost on to the borrower. The
buyer has some influence over the choice of insurer but ultimately the lender must be satisfied it will be able to recoup
any losses in case of default.
Private mortgage insurance can be paid on either an annual, monthly, or single premium plan. Premiums are based on
the amount and terms of the mortgage and will vary according to loan-to-value ratio
, type of loan, and the amount of
coverage required by the lender.
PI-100 (R 03/2023) 5
Under an annual plan, an initial one-year premium is collected up front at closing, with monthly premiums collected
along with the mortgage payment each month thereafter. Monthly plans let a borrower pay the lender every month
along with the regular mortgage payment. Under a single premium plan, the entire premium covering several years is
paid in a lump sum at closing. Typically, homebuyers choose to add the amount of the lender’s single premium
mortgage insurance premium to the loan amount. By doing this, homebuyers can reduce their closing costs and
increase their interest deduction.
The decision of when to cancel the private insurance coverage does not depend solely on the degree of your equity in
the home. The final say on terminating a private mortgage insurance policy before 22% equity buildup is reserved
jointly for the lender and any investor who may have purchased an interest in the mortgage. Because of the wide
variation in lender, investor, and state requirements, it is necessary to consult your lender on cancellation requirements.
However, according to federal law, the mortgage insurance will be automatically terminated when the loan is paid down
to 78% of the original property value.
Title Insurance
When purchasing a home or other real estate, you do not receive the land itself. What you acquire is the title to the
property, which may be limited by rights and claims asserted by others.
Protections against hazards of title are available through a unique coverage known as title insurance. Title insurance is
purchased for a one-time premium and is a safeguard against losses arising from hazards and defects already existing
on the title.
Title insurance protects the insured from losses as the result of claims on one’s ownership of real estate. It insures from
problems occurring even before the insured possesses the title. The following are some of the most common problems
covered by title insurance:
• Fraudulent or misrepresented deeds
, releases, etc.
• Recording mistakes
• Undisclosed missing heirs
• Unfiled liens
• Incompetency of previous sellers
• Erroneous interpretations of wills
• Bankruptcy
• Fraudulent or forged deeds
The title insurance policy
obligates the insurer to pay you if the policy does not disclose things affecting the title that
may be found by examining public records, including deeds, mortgages, wills, divorce decrees, court judgments, tax
records, liens, encumbrances, and maps. The title search determines who owns the property, what debts are owed
against it, and the condition of the title.
Another feature of title insurance is the obligation of the insurer to defend you against claims of others covered by the
policy, regardless of their validity. A title insurance company must defend your title in court, subject to certain
limitations, and if it loses, the company pays covered losses up to the face amount of the policy.
Types of Title Insurance
There are two types of title insurance policies: owner’s coverage and lenders or mortgagee protection.
Owner’s Title Insurance
Owner’s title insurance is usually issued in the amount of the real estate purchase and lasts as long as the insured or
his/her heirs have an interest in the property.
Lender’s Title Insurance
The amount of lender’s title insurance decreases and eventually disappears as the loan is paid off. Most lenders require
PI-100 (R 03/2023) 6
mortgagee title insurance as security for their investment, just as they may require other types of coverage as investor
protection.
Do I Need Both Types of Coverage?
Yes, when you borrow money to buy a home, the lender typically (see exceptions and exclusions below) requires you to
buy title insurance to protect its interest in case of foreclosure. This is to make sure whoever sells you the property has a
legal right to do so.
A lender’s policy does not protect you. Similarly, the prior owner’s policy does not protect you. If you want to protect
yourself from claims by others against your new home, you will need an owner’s policy. When a claim does occur, it can
be financially devastating to an uninsured owner. If you buy an owner’s policy, it is usually much less expensive if you
buy it at the same time and with the same insurer.
The owner’s policy remains in effect as long as you or your heirs own the property or are liable for any title warranties
made when the property is sold. You should keep your policy, even if you transfer the title. Your owner’s title policy
cannot be transferred to a new owner. If the new owner wants an owner’s title policy, there must be a new policy issued.
Buying Title Insurance
Title insurance is sold both directly by title insurers and by their agents in a specific geographic area because of the
need to examine local records. In exchange for the premium, the title insurance agency searches local records to trace
the ownership and sale of the property.
Title insurance is significantly different from other forms of insurance in its nature. Many people mistake title insurance
for casualty insurance. Casualty insurance provides coverage for losses due to unforeseen future events, such as if your
house burns down or a tornado takes off the roof. Title insurance eliminates risks and prevents losses in advance by
extensively searching records and examining titles to the property for defects arising from past events.
Title insurance companies and agents are licensed by OCI. Title insurance is sold directly by an insurance company
through a title insurance agent
. A title agency is authorized by a title insurance company to issue policies for the
company. In all states, agents and insurance companies must be licensed to sell insurance. To find out the name of the
insurance company
underwriting a title insurance policy, you will need to call the title agency and ask for the name of
the insurance company and the name of the title insurance agent. Licensing information about agents and companies
can be found on OCI’s website at
oci.wi.gov/Lookup or by calling 1-800-236-8517.
Cost of Title Insurance
Most of the cost for title insurance involves searching public land records, tax assessor records, and court documents
analyzing them for risk
, clearing matters to be disposed of, and preparing the necessary documents.
Unlike other insurance premiums, a title insurance premium is paid only once. The policy is effective as long as the title
or “ownership” remains in the name of the insured or his or her heirs. Title insurance, unlike other types of insurance
coverage, does not have to be renewed.
Exceptions and Exclusions
Title insurance protects you against problems someone else caused in the past and not those you caused or those
unrelated to you or the lender’s property interests.
A title insurance policy contains exclusions
and exceptions. It does not cover losses under those exclusions or
exceptions. You should consider discussing the policy’s exceptions and exclusions with a title insurance agent or
attorney before closing any real estate purchase. Schedule B of your title policy lists exceptions and exclusions on the
Exclusions page.
PI-100 (R 03/2023) 7
Alternatives to Title Insurance
You may be given alternatives to traditional title insurance coverage. For example, in rural areas, many transactions are
done with an abstract
of title with an attorney’s opinion. Sometimes these transactions do not fall under insurance
regulation. You should carefully consider any alternatives to see if they meet your needs. Some title insurance
alternatives do not provide insurance coverage or any type of protection for the owner. Those plans are designed to
satisfy the needs of lenders. The cost of the plan is passed on to the consumer the same as title insurance or other title
opinion costs.
Ask the provider of the alternative plan what insurance, legal opinion on ownership, or other protection the plan
provides to protect your investment in ownership of the property. Find out if you receive an owner’s policy of title
insurance.
Federal Housing Administration and Veterans Administration Mortgages
You may be eligible for a loan insured through the Federal Housing Administration (FHA) or guaranteed by the
Department of Veterans Affairs (VA
). FHA and VA insurance also protect the lender against borrower default under a
government program rather than through the private enterprise system.
The FHA and VA programs enable lenders to arrange financing for the borrower with minimal or no down payment.
When borrowing under these programs, you will pay a Mortgage Insurance Premium (FHA) or a Funding Fee (VA) to
insure the mortgage. This is similar to private mortgage insurance on a conventional loan. These insurance premiums
may be paid out-of-pocket at the time of closing or financed by increasing the mortgage amount.
Although many of the insurance policies discussed above are required as protection for a lender, they can be very
beneficial to the borrower as well. Homeowners, flood, and title policies can ease a homeowner’s financial burden in the
event of unpleasant surprises, while mortgage insurance allows a buyer to get into a home with a minimal down
payment.
Flood Insurance
Homeowners insurance does not cover most flood damage. To obtain flood coverage, you must purchase it from
the National Flood Insurance Program (NFIP). Flood insurance is mandatory for federally backed mortgages on
structures located in special flood hazard areas.
NFIP is a federal program enabling property owners to purchase insurance protection against losses from flooding. This
insurance is designed to provide an insurance alternative to disaster assistance to meet the escalating costs of repairing
damage to buildings and their contents caused by floods.
Participation in NFIP is based on an agreement between local communities and the federal government. If a community
will implement and enforce measures to reduce future flood risks to new construction in special flood hazard areas, the
federal government will make flood insurance available within the community as financial protection against flood loss
occurrences.
NFIP is administered by the Federal Insurance & Mitigation Administration, a component of the Federal Emergency
Management Agency (FEMA), and an independent agency. The Federal Insurance & Mitigation Administration has
elected to have state-licensed companies’ agents and brokers sell flood insurance to consumers. State regulators hold
the insurance companies’ agents and brokers accountable for providing NFIP customers with the same standards and
level of service the states require of them in selling their other lines of insurance.
The lender must first determine whether the structure is in a Special Flood Hazard Area (SFHA). For all properties in an
SFHA, lenders must require flood insurance when making, increasing, extending, or renewing a loan. This requirement
PI-100 (R 03/2023) 8
only applies when the structure is in the SFHA, not the lot. Lenders must ensure coverage remains in effect for the life of
the loan.
If a loan has escrows
for taxes, insurance, or for any other reason, the lender must then escrow for flood insurance too.
Lenders are required to notify borrowers if their home is in an SFHA and allow buyers 45 days to purchase flood
insurance. After 45 days, lenders have the statutory authority to force place (obtain a policy) coverage for flood
insurance.
If a buyer believes the flood zone determination was in error, the buyer and the lender must jointly request a review
from FEMA with supporting technical information.
The best person to help you buy flood insurance is the agent or the insurance company from whom you obtain your
homeowners or automobile insurance. However, flood insurance may be bought through any licensed property or
casualty insurance agent in Wisconsin.
Some insurance companies issue flood insurance policies, in partnership with the federal government, as a service and
convenience for their policyholders. In those instances, the insurance company handles the premium billing and
collection, policy issuance, and loss adjustment on behalf of the federal government. These insurance companies are
called Write Your Own insurers. If your agent or insurance company is not in the Write Your Own program, you may be
referred to another agent or insurance company involved in the program. Your agent may also order the policy for you
directly from the federal government.
For more information on flood insurance contact the Region V NFIP Office (covering IL, IN, MI, MN, OH, WI). Find the
most up-to-date Region V contact information at https://nfipservices.floodsmart.gov/NFIP-Regional-Support-Offices
.
Catrina Covino
P.O. Box 443
Gates Mills, OH 44040
(202) 774-7108 (cell phone)
catrina.covino@associates.fema.dhs.gov
You can find information about flood insurance on OCI’s website at oci.wi.gov/FloodDamage. You can also find
information about settling a property insurance claim, what to do after a loss, and tips on what to do before a loss at
oci.wi.gov/PropertyClaims or calling 1-800-236-8517.
Insurance Marketing
For the most part, insurance is sold directly or through an agent or broker. An independent agent may represent more
than one, and sometimes several, insurance companies. An exclusive or captive agent sells solely for one insurance
company or group of related companies. Independent agents, as well as exclusive agents, may place business with
another company if the company(s) he or she represents does not write the type of insurance needed. A broker
represents you in dealings with an insurance company.
When you first talk to an agent, be sure he or she is willing and able to explain various policies and other insurance-
related matters. An agent should look for ways to get you the most protection at an affordable cost. Make certain your
agent agrees to review your coverage from time to time, advises you about other financial services, and assists you
when problems develop.
Many agents are interested in selling package products or services to as many people as possible. While there is
nothing wrong with low-cost, standardized products, they should fit your needs. If you are not convinced a particular
agent understands your needs and will give you the service you want, look for another agent.
Friends may have some recommendations. If not, try the internet. If you travel frequently, you may want to check with
your company or agent to find out how to file a claim when you are out of the area.
PI-100 (R 03/2023) 9
In all states, agents and insurance companies must be licensed to sell insurance. Licensing information about agents
and companies can be found on OCI’s website at oci.wi.gov/Lookup
or by calling 1-800-236-8517.
Consumer Buying Tips
There are several items to keep in mind when buying almost any type of insurance:
• Shop Around. Insurance premiums can vary substantially from company to company, so it usually pays to check
with several companies before making a final choice.
• Choose a Deductible. If you are buying homeowners insurance, you can often save money by purchasing a
policy with a higher deductible
. A deductible is the amount of the claim for which you are responsible. The higher
the deductible, the lower your premium. With a higher deductible, you could pay for relatively small expenses
out-of-pocket and leave major losses to the insurance company.
• Shop for Discounts. Insurers give discounts when you package your auto and homeowners insurance.
• Do Not Pay Cash. Always pay the agent or insurance company with a check, money order, debit card, or credit
card. This will be your proof of payment.
• Take Advantage of “Free-Look” Periods
. Life insurance policies usually include a 10- or 30-day free-look
period. This means you can return the policy within the free-look time and get the entire premium back.
• Think Twice About Replacing a Life Insurance Policy with a New One. A new policy may include waiting
periods or exclusions covered in your existing policy.
• Read Your Policy Carefully—Particularly Any Sections Relating to Exclusions and Limitations. The time to
understand your policy is before you have to make a claim.
• File Claims Promptly. The sooner you file claims, the sooner you will receive payment. Once an agreed dollar
amount settlement has been reached, the insurance company is required, by law, to pay claims within 30 days or
to pay interest on the claim amount.
While the price you pay is important, buying the least expensive policy may not be a good idea. Insurance sounding too
good to be true probably is. However, looking only at benefits could result in paying a higher than necessary premium.
You should consider all the following when choosing a company and a policy:
• Premium
• Benefits, including any coverage exclusions or limits
• Service (what is involved in making a claim?)
• Renewability (how easily can your policy be canceled?)
• Financial strength and reliability of the company
• Company management philosophy
Problems with Insurance
If you are having a problem with your insurance, you may want to first check with the agent or company that sold you
the policy. If the conflict is not resolved to your satisfaction or if you prefer, you can file a complaint
with OCI. An online
complaint form is available at oci.wi.gov/complaints.
OCI investigates complaints to determine if any insurance laws have been violated. If so, OCI may act against the agent
or company. These actions include imposing fines or suspending or revoking licenses.
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Make sure you have included detailed information about your insurance complaint. The more complete and accurate
this information is, the more likely your complaint can be resolved. Be sure to include the correct name of the insurance
company and the details of your complaint. Many companies have very similar names. Listing the wrong name may
delay the investigation of your complaint.
