What is the likelihood that a piece of property will lose its value over time? Very likely! Look what happened to the housing market-homes now cost less than they did 5 years ago, simply because of the current mortgage crisis.
Therefore, if a home was purchased five years ago today at $309,000, that home would cost significantly less today than it did five years ago.
So if the home in our example was to be sold today, the seller would not get the same price of $309,000; he or she would get less money.
This is if the seller didn't have home equity insurance.
However, if the individual had home equity insurance, then he or she would be entitled to that previous amount and any built-up equity that have accumulated in the past five years.
This is why insurance is so important.
There are many places one can get home equity insurance quotes.
What exactly is home equity insurance? Well, home equity insurance is a type of mortgage-related insurance that protects the home buyer from financially loss that usually occurs as a result of property devaluation.
Property value depreciation occurs during economic downturns, similar to what has happened to the housing market over the past several months.
A large percent of people nationwide, lose money in their houses in the early 1990s, simply because they live in markets that declined over ensuing years.
It is therefore a very high probability of housing markets declining without warning.
The rule of thumb if one is intending on selling in the future is to protect the value of the property with insurance.
There are circumstances when having home equity insurance doesn't make good business sense.
Home equity insurance only makes sense if a homeowner is planning on selling in the future.
So, if the owner is not planning on selling the property at a later date, it doesn't make good business sense to get a home equity loan.
The reason is that funds paid for home equity loan premiums can only be retrieved when the property is sold.
Home insurance is great when the homeowner is planning to sell the home at a certain time and is not planning on staying for the long term.
Therefore, decrease in property value is of utmost importance, so protecting the value of the property with home equity insurance, in case of a decrease in value is paramount.
If the property is sold and there is a decrease in property value below the original value at the time the insurance policy was purchased, the seller will be eligible for a claim at the original rate of the policy.
So, although the property loses money in regards to property value, the seller will not lose.
In contrast, if the homeowner sells the property for more than is owed, the home equity insurance will pay the difference.
In such case, having home equity insurance makes good sense.
Home equity insurance is warranted when there is a possibility that a property will be sold in the future.
However, if the property won't be sold by the homeowner, then getting equity insurance is not the wisest thing to do.
Equity insurance protects the property value of the home, so in case the value of the property decreases, the homeowner will not lose money and will make money if the property is sold for a higher value than it was purchased for.
Home insurance is not always necessary, and therefore depends on the intention of the home owner.