General information, not insurance or legal advice

Homeowners Insurance When Buying a Home in Tennessee

If you are buying a home in Manchester or anywhere in Coffee County with a mortgage, your lender will ask for proof of homeowners insurance before closing. Even if you pay cash, the policy you choose decides what happens after a fire, a storm or a burst pipe. This guide explains the basics in plain English, based on the Tennessee Department of Commerce and Insurance (TDCI), the federal Consumer Financial Protection Bureau (CFPB), FEMA's National Flood Insurance Program and the Tennessee Code.

This is general information, not insurance or legal advice. A licensed insurance agent and your policy itself have the final word on what is covered, so confirm the details with your agent and, for questions about your rights, with TDCI.

Why your lender requires it

The CFPB explains that homeowners insurance pays for losses and damage to your property if something unexpected happens, like a fire or burglary. When you have a mortgage, your lender wants the property protected, so lenders generally require proof that you have homeowners insurance. The CFPB notes it is sometimes called hazard insurance, and that it is not the same thing as mortgage insurance.

You can shop for homeowners insurance separately and choose the company and plan that are right for you. The cost your lender expects appears on page one of your Loan Estimate, in the Projected Payments section, but the CFPB suggests doing your own research on what coverage costs.

What a homeowners policy usually covers

TDCI describes these parts of a typical homeowners policy:

• Damage to the house. Covers damage to the house itself, up to the face amount of the policy.
• Other structures. Covers other buildings or structures, such as a detached garage, a work shed or fencing.
• Personal property. Covers household contents and belongings. TDCI notes that items like jewelry, antiques and artwork may need special added coverage.
• Additional living expenses. Helps pay necessary living costs, up to the stated limit, when you cannot live in the home because of a covered loss.
• Personal liability. Protects you against claims from accidents to others on property you own or rent, with some exceptions such as auto or boating accidents.
• Medical expenses. Covers medical bills, limited per person and per accident, for people other than you who are injured on your property.

Replacement cost or actual cash value

This is one of the biggest choices in a policy. TDCI explains the difference:

• Actual cash value pays the cost to repair or replace, minus depreciation, which TDCI describes as wear and tear or age.
• Replacement cost pays what it would cost to replace or rebuild with materials of similar kind and quality at today's prices, without taking off depreciation.

TDCI says replacement cost benefits will generally pay more on a claim, but not every home or item will qualify. An insurer may decide based on the home's condition and its own underwriting guidelines. TDCI also says an insurer may first pay the actual cash value and then pay the difference after you send a receipt for the repair. Ask your agent which one your quote uses, especially for the roof.

TDCI's rule of thumb is to insure your home for at least 80 percent of its replacement value, noting that in most cases the value of the land does not need to be included. Ask your agent how the dwelling amount on your quote was set.

What is not covered: flood

TDCI says flood damage is not included in a homeowners policy. FloodSmart, the NFIP website, says most homeowners insurance does not cover flood, and that any homeowner in a participating NFIP community can buy a flood policy, including condo and townhouse owners. FEMA's Community Status Book lists both the City of Manchester and unincorporated Coffee County as participating communities.

Two timing rules matter when you buy:

• The 30 day wait. FloodSmart says flood coverage usually starts 30 days after purchase.
• The mortgage exception. There is no wait if you buy flood insurance while making, increasing, extending or renewing a mortgage, so a policy bought for your closing can start when your loan closes.

My flood zones guide explains how to look up the FEMA flood zone for an address, when lenders require flood insurance and how an Elevation Certificate can help.

What is not covered: earthquake

The CFPB says standard homeowners insurance does not cover damage from earthquakes or floods, though it may be possible to add coverage. TDCI says traditional homeowners policies do not cover earthquake damage and that earthquake insurance can be bought in Tennessee from licensed insurance producers. TDCI notes that Tennessee has two seismic zones, the New Madrid Seismic Zone in the west and the East Tennessee Seismic Zone in the east.

If you look at earthquake coverage, read the deductible closely. TDCI says the earthquake deductible is usually 10 to 20 percent of the coverage limit, not a flat dollar amount, and that a policy may have separate deductibles for the home, belongings and outside structures.

Sinkhole coverage in Tennessee

UT Extension notes that large areas of Middle and East Tennessee sit on karst, limestone and dolomite rock where sinkholes can form. Tennessee law has a specific rule here. Under TCA 56 7 130, every insurer offering homeowners insurance in Tennessee must make coverage for insurable sinkhole losses available, including contents. It does not have to be included in your policy automatically. It is optional coverage you can request, the insurer may charge extra for it, and the insurer may inspect the property before issuing it.

The statute defines a sinkhole loss as structural damage caused by the sudden collapse of the earth under the home from sinkhole activity. It does not include the cost of stabilizing the land, and it does not include cracking or settling without structural damage. If you are buying in Coffee County, ask your agent whether your quote includes sinkhole coverage and what it would take to add it. In Tennessee, a seller who knows of a sinkhole on the property must disclose it under TCA 66 5 212, and my seller disclosure guide explains the rest of the disclosure rules.

What affects your premium

TDCI lists factors that can affect what you pay, including:

• The home. Its age (TDCI says older homes typically cost more to insure), the type of construction, the wiring, the roof and whether it has a garage.
• The location. How close it is to a fire station and its exposure to severe weather such as tornadoes and hail.
• Protective devices. Burglar alarms, smoke detectors, fire extinguishers, sprinkler systems and dead bolt locks.
• Your history. TDCI notes that many insurers use credit history in pricing, and that your past claims have a big impact on premiums.

TDCI also suggests thinking about a higher deductible if you are unlikely to file a claim for a small loss. Your home inspection report can help here too, because the age and condition of the roof, wiring and plumbing are the kinds of things insurers ask about. My home inspection guide explains what an inspection covers.

Ask the seller about the CLUE report

Insurers often look at a claims history report called CLUE, short for Comprehensive Loss Underwriting Exchange, produced by LexisNexis. TDCI says it generally contains up to seven years of personal auto and property claims history, and an insurer may pull it when you apply or ask for a quote, using your own claims history or the claims history at a specific property.

The catch for buyers: TDCI notes that if you want a CLUE report on a property you would like to buy, the owner must request it. A buyer can ask the seller for a copy during the inspection period. Under the Fair Credit Reporting Act, TDCI says you are entitled to a free copy of your own report from LexisNexis, and you can dispute mistakes or add an explanation.

Tennessee also protects homeowners who simply ask questions. Under TCA 56 7 113, an insurance company may not raise your premium or cancel your homeowners policy solely because you asked about your coverage, a type of event or how to file a claim.

Escrow and paying the premium

The CFPB says many homeowners pay for insurance through an escrow account as part of the monthly mortgage payment. The lender holds that part of each payment and pays the insurance bill when it is due. Because premiums can change from year to year, your escrow payment, and with it your total monthly payment, can change too.

At closing, the CFPB says you usually pay the first 6 to 12 months of homeowners insurance at or before closing, as part of your prepaids. My buyer closing costs guide explains prepaids and the escrow deposit.

If insurance lapses, the CFPB says your lender is allowed to buy it for you and charge you, after giving you advance notice. That lender placed insurance may cover only the lender, not you, and may cost more than a policy you buy yourself.

A buyer insurance checklist

• Start getting quotes as soon as you are under contract, not the week of closing
• Ask each agent whether the quote is replacement cost or actual cash value for the dwelling and the roof
• Compare deductibles, the dwelling amount and the other structures limit, not only the premium
• Ask whether sinkhole coverage is included and whether earthquake coverage is available
• Look up the flood zone and get a flood quote for the specific address
• Ask the seller for a CLUE report on the home
• Send your lender the insurance company and agent contact information early so the policy is in place for closing
• Start a home inventory with photos or video of each room, which TDCI says makes a claim easier

Check a license or file a complaint

Insurance agents and companies in Tennessee are licensed by TDCI. You can look up a license with the Department's Verify an Insurance License search, and TDCI's Consumer Insurance Services section answers policy questions and investigates complaints, including claim denials. Its number is (615) 741 2218 or toll free (800) 342 4029, and the policy must have been written in Tennessee.

How I help

Insurance quotes and coverage advice come from a licensed insurance agent, and I do not recommend a particular insurance company. What I do is build insurance into the timeline from the start: I help you get the seller's documents, such as any CLUE report and Elevation Certificate, flag inspection items an insurer may ask about, and keep your agent, lender and closing team on the same schedule so the policy is ready on closing day.

Keep reading:

• Flood zones and flood insurance in Manchester
• Buyer closing costs in Tennessee
• Title insurance in Tennessee
• Home inspections in Tennessee
• Printable home buyer checklist
• Buying a home in Manchester, step by step
• All Manchester guides

Fair housing note: I work with every buyer and seller, and I help everyone the same way when it comes to insurance questions.

This guide is general information from public sources, not insurance or legal advice. Coverage and rules can change, so confirm the details with a licensed insurance agent and the Tennessee Department of Commerce and Insurance.

Buying in Manchester or Coffee County?

I can help you line up the inspection, the insurance and the lender so nothing is left for the last week. Call or text me at (615) 497 1658, or get my free buyer guide below.

Common questions

Matt Sargent is a Tennessee licensed affiliate broker with Keller Williams who helps buyers and sellers in Manchester and Coffee County. Call (615) 497 1658 or send a message.