How to Buy Homeowners Insurance

When buying a home, you need to purchase a strong homeowners insurance policy to protect your investment. However, this isn’t necessarily a straightforward purchase.

With so many options available, you’ll need to assess your situation and establish your search criteria. Compare quotes from multiple insurance providers to ensure you get the best deal that meets your coverage needs.

In this guide, we’ll cover six steps all homeowners should follow when they’re in the market for an insurance policy. By following these steps, you may be able to find a policy that makes the most of your budget, supports you and your family in the event of loss, and gives you the coverage you need in various situations.

Key Information About Buying Homeowners Insurance

The following table includes the six recommended steps homeowners should take when searching for coverage. 

Buying Homeowners Insurance in 6 Simple Steps
Understand Policy Terms	Familiarize yourself with insurance policy terminology and definitions so you can more easily understand the options available to you.
Determine Coverage Needs	Identify the specific coverage required for your home and your unique circumstances.
Compile Information on Your Home	Gather data, such as square footage and home type, to ensure you get accurate quotes.
Compare Homeowners Insurance Quotes	Compare quotes to save money and find the right policy or lender.
Choose the Best Policy for Your Needs	Customize your coverage and select the ideal policy for your needs.
Finalize and Sign Your Policy	Complete the necessary steps to get your policy in place.

How to Buy Homeowners Insurance in 6 Simple Steps

It’s easy to find the right homeowners insurance when you understand what’s available and what you need. By following these steps, you’ll be prepared to answer any questions that come your way, stay within your budget, and find the coverage you need without compromising your goals. 

Make sure you understand policy terms, assess your coverage needs, and gather details about your home so you can get accurate quotes to compare. From there, you only need to customize the policies to fit your needs, choose the one that best serves you, and finalize the agreement. 

1. Understand Homeowners Insurance Terms and Definitions 

When you have a strong grasp of homeowners insurance terms and definitions, you can confirm you’re getting the coverage you need and aren’t paying for anything that doesn’t apply to your situation. 

Some key terms and definitions you need to understand include:

Premium

Your monthly, semiannual, or annual bill for your homeowners insurance policy will be referred to in documents as your premium. This is the amount you pay to maintain your coverage.

Deductible

Your deductible is how much you’re expected to pay before your insurance company will begin paying out on a claim. You can often adjust this amount to suit your needs. Higher deductibles often mean lower premiums, while lower deductibles increase your premiums.

You may be able to choose between fixed-rate and percentage-based deductibles. A fixed-rate deductible means you’ll pay a specific deductible amount regardless of the value of your home, for example, $2,000. With a percentage-based deductible, you’ll pay a percentage of your home’s value, which can change as the market changes.

Policy

Your policy is the contract you sign from your insurer that covers all the terms and conditions of your coverage.

Coverage

This refers to what your policy covers and what your insurer will pay to fix or replace. This can get very specific, so pay attention to the details.

The four levels of coverage in homeowners insurance include the following:

• Dwelling coverage: This protects the structure of your home, which is everything from the walls and the roof to the foundation. It may also include attached structures, such as sheds or carports.
• Personal property coverage: Your personal property includes all your belongings, including but not limited to basic furniture, appliances, and clothing.
• Liability coverage: This type of coverage helps you pay for the cost of replacing or repairing someone else’s property if it’s damaged due to negligence on your part or to help someone cover their medical bills if they’re injured on your property.
• Additional living expenses (ALE): ALE pays for costs incurred if your home is unlivable after a covered loss.

Actual Cash Value (ACV)

This is the actual value of your property. Your insurance company takes depreciation into account when calculating the payout.

Replacement Cost Value (RCV)

This refers to the cost of replacing damaged or stolen items without factoring in depreciation. For a dwelling, it refers to the cost to rebuild it from the ground up.

Claim

A claim is a formal request you make to your insurance company when you experience a covered loss.

2. Determine Your Coverage Needs

When determining your coverage needs for homeowners insurance, focus on the following key areas:

Your Mortgage Lender’s Requirements

If you have a mortgage loan, your mortgage lender may have special requirements. For example, they may contractually require you to have a certain coverage limit or deductible.

Cost to Rebuild Your Home

The first consideration is how much coverage you’ll need to rebuild your home if the worst happens. Consider the cost of building supplies, how much you’ll need to pay contractors, and the costs of anything you may need to do to ensure the work is up to current code.

Value of Personal Belongings

Make a detailed list of everything you own and its estimated value. This includes everything from furniture, appliances, and electronics to clothes, books, and other personal items. The more accurate and detailed it is, the better equipped you’ll be to assess how much personal property coverage you’ll need.

Value of All Assets

In some cases, you’ll need to replace more than just your belongings. If someone is injured on your property and you’re sued for liability, you may need to protect your valuables from being absorbed into the judgment. Considering the value of all your assets will help you determine what level of liability coverage you need.

Additional Coverage Needs

Several factors can potentially impact your homeowners insurance costs, including: 

• Location: Your geographic location will have an effect on your insurance needs. For example, additional coverage may be necessary if you live in an area prone to natural disasters, such as hurricanes or earthquakes.
• Personal liability: Examine your personal liability risk, especially if you have pets or frequently host guests. Determine whether a higher limit would be better for liability coverage.
• Valuable items: If you own high-value items, such as jewelry, fine art, or collectibles, evaluate whether you need additional endorsements or scheduled personal property coverage to adequately protect them if they’re damaged or stolen.

3. Compile Information on Your Home

Gathering all the necessary information about your home is crucial when shopping for homeowners insurance. It helps you get a more accurate quote and speeds up the insurance coverage process. 

Before applying for insurance quotes, gather the following information:

• Property details: Know some basic details about your home, such as the address, square footage, and year built. Your home’s size, age, and location give potential insurers a better understanding of the risks of breakage, damage, or loss. 
• Construction materials: Identify what your home is made of, such as wood, brick, or concrete. Different materials may affect insurance costs, particularly in areas at risk for natural disasters, such as hurricanes.
• Roof type: Note the roofing material and its age, as an older roof may translate into a higher premium.
• Safety features: List safety upgrades, such as smoke detectors, security systems, motion-activated lights, and deadbolt locks. These can lower your rates.
• Utilities and systems: Document details about your HVAC, plumbing, and electrical systems. Up-to-date systems are less likely to cause problems.
• Liability limits: Decide how much liability coverage you need if someone is injured on your property or you’re legally responsible for damages on someone else’s property, such as if a tree in your yard falls onto your neighbor’s car.
• Prior claims: Be prepared to provide details of any prior claims or losses that could affect your premiums. This is especially important if you’re seeking a new homeowners insurance policy for a home you previously insured with a different company. 

4. Compare Homeowners Insurance Quotes

Quotes can vary between different companies, sometimes for similar levels of coverage. Comparison shopping can potentially save you a lot of money. 

It allows you to evaluate and select coverage tailored to your unique needs. You can also consider insurers’ reputations for customer service and claims handling as you compare providers.

When comparing insurance quotes, look beyond the cost and make a note of the following details:

Coverage Adequacy

Make sure your policy provides sufficient coverage. The option with the lowest rates might be insufficient, and you don’t want to be surprised by a lack of coverage when an event occurs.

Deductibles

Compare deductibles, and select one that meets your budget and risk profile.

Policy Terms

Read and understand the terms of your policy, such as its exclusions and limitations.

Financial Stability

Verify an insurer’s financial strength rating to ensure it can pay out claims. You can research an insurer’s financial stability through A.M. Best, Fitch, and Standard & Poor’s.

Discounts

Search for discount opportunities that may be available to you depending on your circumstances. Some examples of discounts insurance companies might offer include:

• Bundling discounts: Combining homeowners and auto insurance policies with the same insurer can help you save up to 30% with some companies.
• Security system discount: Installing a monitored security or fire alarm may qualify you for a discount of approximately 5% on your homeowners insurance premiums.
• Loyalty discounts: Staying with one insurer for 5 or 10 years may lead to savings on premiums.
• Group discounts: If you’re in the military, an educator, or belong to a professional organization, you may be able to get a discount with proof of membership. 
• Employer-related discounts: Your employer may offer discounts for homeowners insurance through partner companies. 

5. Choosing the Best Policy for Your Needs

Selecting an adequate homeowners insurance policy is the most important step you can take to protect your home and possessions against risks such as fire, theft, and natural disasters. Additionally, knowing that you have sufficient financial protection provides peace of mind if any lawsuits arise involving injuries to others on your property.

Lisa Koosis, a former claims specialist, also suggests, “When comparing home insurance companies, it’s important to be honest with providers about any potential risks. For example, some companies won’t underwrite homeowners who have certain breeds of dogs, and failure to disclose this information could result in claim denials or policy invalidation.”

In many cases, your homeowners insurance policy (even if it’s comprehensive) may not give you the full coverage you need in your situation. If optional add-ons or endorsements are available to extend your coverage for specific items, investing in one or more might make sense, depending on your needs and location. 

Common endorsement options include the following:

Flood Insurance

Flood insurance generally isn’t included as part of a standard homeowners policy for flooding due to natural events, such as storms, but flooding due to a burst pipe is typically covered. If you live in an area prone to flooding, purchasing separate flood coverage might be necessary.

Earthquake Insurance

Earthquake coverage typically isn’t included with standard homeowners policies. If you live in an earthquake-prone region, it may be wise to purchase this coverage separately.

Water Backup Coverage

Water backup coverage can help cover any damages resulting from sewer or drain backups, which are sometimes unavoidable.

Identity Theft Protection

Identity theft protection can help mitigate the financial and emotional fallout if someone steals your identity, which can result in huge losses.

6. Finalize and Sign Your Policy

Once you’ve selected a homeowners insurance policy and any applicable endorsements or riders, you’ll need to sign and finalize the contract. Once you sign, you’re protected under the terms of the policy.

The following steps are required for finalizing and signing your homeowners insurance policy:

Choose Your Deductible

While you can choose a higher deductible to save on premiums, if an incident occurs, you’ll likely pay higher out-of-pocket costs.

Finalize the Policy and Any Endorsements

Once you’ve selected your deductible, you can finalize your policy with any desired endorsements. Read its terms and conditions to ensure you fully understand what you can expect from your insurance company and what’s required of you.

Choose How You’ll Pay Your Premiums

Determine whether you’ll pay your premiums monthly, quarterly, semiannually, or annually. However, not all insurers offer all these payment options. If you have a mortgage, for example, your premium payments may come directly out of your escrow account. 

Set Dates

Start and end dates must be specified on your policy. You should ensure there aren’t any gaps in coverage.

Once these steps have been completed, sign and return your policy to your insurer. Your coverage becomes effective according to the dates outlined.

Mistakes to Avoid When Buying Homeowners Insurance

Some common mistakes people make when buying homeowners insurance include: 

• Putting cost over coverage levels: Make sure you have enough coverage to protect your home and belongings in the event of a loss. Don’t sacrifice coverage just to save money on your premiums.
• Not shopping around: Settling for the first quote can result in missed savings. Compare quotes from multiple insurers to find the best coverage at a competitive price.
• Overlooking discounts: Many insurers offer discounts for safety features, security systems, or loyalty. Ask about available discounts to reduce your premium.
• Not reading the fine print: Skipping the policy details can lead to unpleasant surprises. Read your policy thoroughly, make sure you understand any exclusions, and ask questions to clarify any doubts.

Tips for First-Time Homebuyers Looking for Insurance

For first-time homebuyers, navigating the world of homeowners insurance can be a bit overwhelming. To simplify the process and ensure you make the right choices, consider the following tips:

Know the Difference Between Replacement Cost and Market Value

Replacement cost is coverage to rebuild your home with the same quality materials, while market value covers your home’s current market price. Depending on where you live, one may be lower than the other.

Fill Coverage Gaps

Your homeowners insurance may not cover everything, such as certain natural disasters. If needed, buy additional coverage for events not covered by a standard policy, such as flood insurance.

Understand Limits

Be clear on how much coverage you have for your home, belongings, and liability in your policy.

Shop Around

Get quotes from different insurers before picking the one that meets your needs.

Consider Buying Through an Agent or Broker

An agent or broker can do the comparison shopping for you. They can also help you understand the complexities of policies. 

Ask for Discounts

Many insurers offer discounts for bundling policies, security systems, or other safety measures.

Frequently Asked Questions About How to Buy Homeowners Insurance

The answers to the following frequently asked questions about buying homeowners insurance can help you make informed decisions about the coverage you need.