If you are financing the purchase of your home with a mortgage, you will need to arrange for fire insurance to cover the property from the closing day. This column will give a brief outline of what you need to know about fire insurance.

Lenders insist on a policy of fire insurance which notes their interest in the property on closing before they advance funds because they need to be assured that their mortgage will get paid even if the house burns down. In the event of a fire, the lender’s loan is protected.

In order to enable your lawyer to close your purchase on time, you are responsible for advising your insurance broker of the name, address, phone and fax number of both your lawyer and your lender. The lender must be noted on the policy and your lawyer will require a letter (known as a “binder letter”) confirming that the insurance is in place. Failure of your broker to provide the binder letter to your lawyer will delay in your closing.

If you are shopping for home insurance, there are many available options. Replacement cost means that if you suffer a loss to your personal property, either on or off the property where your home is located, you are entitled to compensation for the full replacement value as opposed to the lower or depreciated value. Replacement guarantee ensures that in the event of a total loss (i.e. the house burns down), the dwelling will be replaced exactly as it was before the loss. IN determining replacement guarantee, your insurance broker will ask you questions relating to the size of the home, number of bathrooms etc. in order to arrive at a figure on which the premium will be based. This figure reflects their opinion of what they think it will cost to rebuild the home if it burns down.

Third party liability coverage protects both you and members of your family who live in the house against claims in certain circumstances. These types of claims relate to things like an injury to someone that slips and falls while on your property as well as things like an injury to someone that slips on your property. Basic perils will cover you for basic perils like fire, theft, vandalism and burglary.

A Named Peril Policy will insure only for the perils named specifically in the policy. An All Risk Policy will cover all risks, except those specifically excluded. An All Risk Policy will topically cover more than a Named Peril Policy.

Your insurance broker should be able to tailor a policy to suit your needs. While price is important, do not overlook the service component, whether in the form of updating you on new products or being able to resolve a claim efficiently and expeditiously.

You may be able to negotiate a better deal from your broker. If you have more than one policy with your broker, you may be entitled to a discount. Some insurance companies will offer discounts if your home is equipped with smoke detectors, dead bolt locks, fire extinguishers and alarm systems.

Arranging the right insurance is an absolute necessity prior to closing. You should work with your insurance professional to ensure that your needs are met.