How to Buy Homeowners Insurance
One of the first considerations when buying a home is to buy a strong homeowners insurance policy to protect your investment.
It’s not necessarily a straightforward purchase. With so many options available, you’ll need to assess your personal 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 the six steps that are recommended for all homeowners to follow when they are in the market for an insurance policy. You can then 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 a range of potential situations.
Key Information About Buying Homeowners Insurance
There are six steps that are recommended for homeowners searching for coverage. Keep reading to learn about these six simple steps to ensure you get the best coverage for the lowest price.
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 different 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 like square footage and home type to help make sure you get the most accurate quotes as efficiently as possible. |
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 & 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 for your needs when you are armed with an understanding of what is available to you and what you need. By following these six steps, you will be prepared to answer the 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 & Definitions
When you have a strong grasp on different homeowners insurance terms and definitions, you can confirm you are getting the coverage you need and not paying for anything that doesn’t apply to your situation.
Here are some of the key terms and definitions to learn:
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 ensure you have coverage.
Deductible
This is how much you are 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.
Policy
This is the contract you sign from your insurer that covers all the details of the terms and conditions of coverage.
Coverage
This is everything that your insurer will pay to fix or replace. This can get very specific, so make sure to look at the details.
Three levels of coverage in homeowners insurance include the following:
- Dwelling coverage: This protects the structure of your home, everything from the walls to the roof to the foundation.
- 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 is to help you pay for the cost of replacing or repairing someone else’s property if it is damaged due to negligence on your part or to help someone cover their medical bills if they are injured on your property.
Actual Cash Value (ACV)
This is the value of your property, which takes depreciation into account when calculating the payout.
Replacement Cost Value (RCV)
Your RCV is the cost to replace damaged or stolen items with new ones, without factoring in depreciation.[1]
Claim
This 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:
Cost to Rebuild Your Home
The first consideration is how much coverage you will need to rebuild your home if the worst happens. Consider the cost of building supplies, how much you will need to pay contractors to do the work, and the costs of anything different you may need to do to make sure it 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 your furniture, appliances, and electronics to things like clothes and books. The more accurate and detailed it is, the better equipped you will be to assess how much personal property coverage you will need.
Value of All Assets
In some cases, you’ll need to replace more than just your stuff. If someone is injured on your property and you are 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 to determine what level of liability coverage you need.
Additional Coverage Needs
There are a number of different factors that can potentially impact your homeowners insurance costs, including these:
- Location: Your geographic location will have an effect on your insurance needs. For instance, if you live in an area prone to natural disasters such as hurricanes or earthquakes, additional coverage may be necessary.
- 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 like jewelry, fine art, or collectibles, evaluate whether or not you need additional endorsements or scheduled personal property coverage to adequately protect them if they are damaged or stolen.[2]
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.
Here’s what you should gather in advance of applying for insurance quotes:
- 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 lets potential insurers better understand 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.
- 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 are 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 are seeking a new homeowners insurance policy for a home you have previously insured with a different company.
4. Compare Homeowners Insurance Quotes
Quotes can vary greatly between different companies, sometimes for similar levels of coverage. Comparison shop to potentially save you a lot of money.
It allows you to evaluate and select coverage that is tailored specifically for 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 just cost alone and make a note of the following details:
Coverage Adequacy
Make sure your policy provides sufficient coverage. The option with the lowest rates might provide insufficient coverage. 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 all terms of the policy, such as its exclusions and limitations.
Financial Stability
Verify an insurer’s financial strength rating to make sure it can pay out claims in time.
Discounts
Search for discount opportunities that may be available to you depending on your circumstances. Here are some examples of discounts insurance companies might offer:
- Bundling discounts: Combining both homeowners and auto insurance policies with the same insurer can help you to save up to 25% with some companies.[3]
- 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 are in the military, an educator, or belong to a professional organization, there may be discounts available to you 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 arguably 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 adequate financial protection provides peace of mind should any lawsuits arise involving injuries to others on your property.
In many cases, your homeowners insurance policy (even if it is comprehensive in nature) may not give you the full coverage you need in your situation. If there are optional add-ons or endorsements available to extend your coverage for specific items, it might make sense to invest in one or more of these depending on your needs and location.
Common endorsement options include the following:
Flood insurance
Flood insurance is typically not included as part of a standard homeowners policy, but if you live in an area prone to flooding, purchasing separate flood coverage might be necessary.[4]
Earthquake insurance
Earthquake coverage is typically not included with standard homeowners policies either. 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 to mitigate both the financial and emotional fallout of identity theft, which can result in huge losses.
6. Finalize & Sign Your Policy
Once you have selected and finalized a homeowners insurance policy and any endorsements or riders, the next step will be signing and finalizing the contract. With this step, you are protected under the terms of the policy.
Here are the steps required for finalizing and signing your homeowners insurance policy:
Choose your deductible
Choose a higher deductible to save on premiums, but remember that if an incident occurs, you will likely pay higher out-of-pocket costs.[5]
Finalize the policy & any endorsements
Once your deductible has been selected, finalize your policy with any desired endorsements. Read through its terms and conditions to ensure that you fully understand what you can expect from your insurance company and what will be required of you.
Choose how you will pay your premiums
Pay your premiums regularly by choosing between monthly, quarterly, semiannual, or annual payments.
Set dates
Start and end dates must be specified on your policy. Ensure it begins when your home closes for sale.
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
These are common mistakes people make when buying homeowners insurance:
- 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 a few bucks 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. Thoroughly read your policy, 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, here are a few essential tips to consider:
Know the Difference Between Replacement Cost & 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 the market you live in, one may be lower than the other.
Fill Coverage Gaps
Your homeowners insurance may not cover everything, like floods. If needed, buy additional coverage like 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 is tailored to meet your needs.
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
Here are frequently asked questions and answers about the process of buying homeowners insurance. Use this advice to guide the crucial decision-making process.
The most important factors to consider as you choose the best provider and policy for your needs include the level of coverage, premium cost, amount of deductible, policy limits, and exclusions. You’ll also want to assess the amount of liability coverage as well as any available discounts on premiums.
Acquiring homeowners insurance typically takes anywhere from hours to days, depending on the insurer and your specific circumstances. Some offer instant online quotes and immediate purchase ability. Other insurers may need more time for underwriting and documentation processes.
The average homeowners insurance policy costs about $1,311 annually. The exact figure you’ll pay can depend on several factors, so it’s best to get multiple estimates that take your personal situation and needs into consideration.
Here are some tips to choose the best homeowners insurance policy:
• Make sure your home and belongings are covered appropriately, considering replacement costs as well as optional riders, such as flood or earthquake insurance, depending on where you reside.
• Compare quotes from multiple insurance companies, taking note of any bundle discounts for other policies.
• Choose an insurance company that is known for exceptional customer service and claims handling.
• As part of due diligence, make sure the insurer has financial ratings from AM Best or Standard & Poor’s that demonstrate stability and claims payment history.
Sources
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Home Insurance Policies Replacement. Texas Department of Insurance.
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Basic Homeowners Insurance. North Carolina Department of Insurance.
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Bundling Home and Auto Insurance. CNBC Select.
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Homeowners Premium Comparison. Insurance Division, State of Hawaii.
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Home Insurance: What You Need To Know. Texas Department of Insurance.