How to Buy Homeowners Insurance

·9 min read
How to Buy Homeowners Insurance

It’s easy to get excited about a new home. But as a homebuyer, you’ll want to make sure you have the proper insurance coverage to protect such a large purchase. It’s also worth knowing what a homeowners insurance policy covers so you can purchase the appropriate amount.

Here’s what you need to know if you’re planning to buy a home insurance policy:

  • How to shop for homeowners insurance

  • How much is homeowners insurance?

  • What does homeowners insurance cover?

  • What does homeowners insurance not cover?

  • Do you need homeowners insurance?

  • Is hazard insurance the same as homeowners insurance?

  • How soon before closing should I get homeowners insurance?

How to shop for homeowners insurance

So, you’ve found your forever home. If you have a mortgage, your lender will almost certainly require you to purchase a homeowners policy. Here are the steps you should take to choose a policy that fits your needs:

1. Find out what you want to cover

Standard homeowners insurance protects your home from the events (or “perils”) named in the policy. But sometimes a standard policy falls short and doesn’t provide the coverage you need. This can be especially true if you own valuable items like jewelry, artwork, or electronics.

If you live in an area prone to flooding, hurricanes, tornadoes, or earthquakes, you might need to purchase additional coverage (often called “endorsements” or “riders”) for further protection.

2. Determine how much coverage you need

The price you paid for the home isn’t necessarily how much it would cost to rebuild. You’ll want to make sure you have enough coverage to cover the entire rebuilding cost in the event it’s completely destroyed.

When estimating how much coverage you need, make sure to:

  • Calculate the full rebuilding cost: Your dwelling coverage limit should be enough to cover the full cost of repairing or rebuilding your home. To estimate this cost, multiply the square footage of your home by the average rebuild cost per square foot in your immediate area. For example, if your home has 3,000 square feet of living area (not including other structures on your property), and local building costs average $100 per square foot, the cost to rebuild would be about $300,000.

  • Create a home inventory: It’s always a good idea to take an inventory of personal belongings when you move into a new home. If disaster strikes, you’ll at least have a record of all your valuables, furniture, and other property. Consider taking photos or videos of each item as well.

  • Estimate replacement cost for your items: First, you’ll need to decide if you want to insure your belongings for their replacement cost (the amount of money needed to replace your items) or actual market value (the amount of money needed to replace your items, minus depreciation). If you decide on replacement cost coverage, it’s worth doing some extra research to see how much it’ll cost to replace some of the more expensive items you own.

3. Research insurance companies

Finding an insurance company to meet your needs can come down to getting the best price for the coverage you want. But make sure the company provides homeowners insurance in your area, offers discounts for bundling, has stellar customer service, few complaints, and competitive pricing. You may also want to verify that you can reach an agent 24/7 if and when you need to file a claim.

4. Get quotes

It pays to shop around. Once you narrow your search to a few insurance companies, get quotes from each one. Agents may reach out with recommendations that meet both your budget and coverage needs. They may also point out home insurance discounts or bundling options.

Credible (powered by Young Alfred) can help with your home insurance needs. Compare quotes all in one place and find a great rate today.

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Perks of working with a broker

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  • No spam, phone calls, upselling, or fake quotes

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5. Choose an insurer and purchase your policy

Whether you’re looking online or through a local insurance agent/broker, the application and buying process is similar. You choose a deductible, determine how you’ll pay your premiums, and set your policy dates. Your insurance company will likely schedule a home insurance inspection as part of the buying process.

How much is homeowners insurance?

The average cost for homeowners insurance across the U.S. is $1,278 per year or $106.50 per month, according to data from the National Association of Insurance Commissioners.

Your quote may be higher or lower depending on a number of factors. Some factors that may raise or lower your premium include:

  • The age of your home and type of construction

  • Location and neighborhood crime rate

  • Risk of natural disasters

  • Coverage limits and riders

  • Local laws and regulations

  • Your claim history

  • Deductible limits

Your deductible determines how much you pay out of pocket when you file a claim for a covered loss. For example, if you have a $2,000 deductible on your house and it sustains $8,000 in damages, your insurer will offer a settlement of no more than $6,000.

You can reduce the cost of your deductible and pay less out-of-pocket for a covered loss by paying a higher premium. Or, you can pay more out-of-pocket when you file a claim and pay a lower premium each month. You can also reduce your premium by adding security and weatherproofing features, keeping up with the maintenance on your home, and becoming a loyal customer.

What does homeowners insurance cover?

Type of coverage

What it covers

Coverage amount

Dwelling

Damage and destruction to the home

You get to choose
(subject to minimums required by your mortgage lender)

Other structures

Structures on the property that aren’t attached to the home, including sheds, fences, and free-standing garages

About 10% of dwelling coverage

Personal property

The cost to repair or replace damaged or stolen personal items, like furniture, appliances, clothing, and electronics. Also usually includes off-site storage units.

Often between 50% to 70% of dwelling coverage

Loss of use

Hotel expenses and some other living expenses while your house is being repaired

About 20% of dwelling coverage

Liability

Legal expenses if you are sued for any injuries or property damage that you or a family member cause to others on your property

Limits usually start at $100,000

Medical payments

Direct payments of medical bills for someone who was injured on your property

Usually between $1,000 and $5,000

Standard homeowners insurance policies include six types coverage:

  • Dwelling coverage: Dwelling coverage, or Coverage A, helps pay for repairing or rebuilding your home if it’s damaged by a covered peril, like fire, lightning, and vandalism. Consider purchasing enough to cover the full cost of rebuilding your home.

  • Other structures coverage: Coverage B covers other structures on your property, such as sheds, detached garages, fences, and pools. Many insurers factor in about 10% of your dwelling coverage for other structures coverage.

  • Personal property coverage: Coverage C pays for your furniture, appliances, clothing, and other belongings if they’re damaged or destroyed by a covered loss. This coverage is typically about 50% of your coverage limits.

  • Loss of use coverage: Also known as additional living expenses coverage, or Coverage D, this coverage will reimburse you for any reasonable living expenses you incur when you can’t live in your home because of a fire or other covered peril. Costs typically covered include hotel stays, food, and storage. Coverage limits are usually 20% of your dwelling coverage.

  • Liability coverage: If a visitor slips on an icy step while on your property and decides to sue you, liability coverage (Coverage E) will pay for your legal expenses. Most insurance policies have minimum liability coverage of $100,000, but you can buy higher amounts.

  • Medical expenses coverage: If a visitor injures themself while on your property, Coverage F will pay for their medical expenses, up to your policy limits. Any medical expenses beyond your policy limits is your responsibility, so it pays to have enough.

You’ll also need to consider some other levels of coverage. These include:

  • Actual cash value: This pays out what it costs to repair or replace your home or belongings, minus depreciation.

  • Replacement cost: This pays out what it costs to repair or replace your home or belongings at today’s prices.

  • Extended replacement cost: This is optional coverage that increases your dwelling coverage limit to account for any increase in labor and construction costs.

  • Guaranteed replacement cost: This pays out the full cost of rebuilding your house back to its previous specifications, including any updates or renovations, even if it exceeds your policy’s limits. This coverage isn’t available in all states.

What does homeowners insurance not cover?

Home insurance covers many perils, but it doesn’t cover everything. You’ll need to buy additional coverage for floods and earthquakes, for example, if you live in areas prone to these natural disasters.

Tip: The National Flood Insurance Program (NFIP) provides flood insurance to homeowners and is available to anyone living in one of the 23,000 NFIP locations. You can also purchase flood insurance (if available) through your insurance carrier at an extra cost.

But you may be out of luck for things generally not covered by a home insurance policy. These might include:

  • Normal wear and tear

  • Lack of maintenance

  • Damage from things like mold, rats, or termite infestation

  • Acts of war and nuclear disasters

  • Power surges or outages

Do you need homeowners insurance?

Homeowners insurance isn’t required by law. However, most mortgage lenders will require you to purchase a policy. That way, you and the lender are protected if your home is destroyed or damaged by a covered event.

Your mortgage lender acts as a loss payee on your policy. If your home is damaged, the insurance check will generally be made out to you and your lender. If the damage isn’t significant and you choose not to get your home repaired, the money will go to pay off your mortgage.

For your own financial protection, it’s in your best interest to maintain an active homeowners policy, even if it’s not required of you.

Is hazard insurance the same as homeowners insurance?

No, hazard insurance is a part of your homeowners policy. You can’t purchase hazard insurance as a separate coverage.

Hazard insurance only covers your home. It doesn’t protect you or your guests if there’s an accident, nor does it provide for additional living expenses or cover your personal items.

Good to know: Your mortgage loan provider may require a certain percentage of your home insurance as hazard insurance before they issue a loan. That’s because it’s the only part of your policy dedicated solely to your home’s structure.

How soon before closing should I get homeowners insurance?

Generally, you purchase a homeowners insurance policy before or at the time you close on your home. That way, you’re covered before even moving in. If a lender writes your mortgage loan, they’ll likely require proof of insurance before issuing the mortgage.

Disclaimer: All insurance-related services are offered through Young Alfred.