First-time home buyers insurance

Ryan McVay/Getty Images

Purchasing a home is exciting but also comes with numerous responsibilities. Your home may be the largest purchase you will ever make, and protecting your finances against the threat of home repair or rebuilding costs is important. This is where homeowners insurance comes in. But for first-time home buyers, insurance may be confusing and overwhelming.

If you are looking for the best home insurance for first-time home buyers, Bankrate’s research and tips may be helpful. Understanding what a policy might cost, what coverages and levels to consider buying and how to save on your premium might help you feel more confident in your insurance choices.

The cost of home buyers insurance

The average cost of a homeowners insurance policy in the United States is $1,312 per year. However, the cost of your own policy will vary based on your personal rating factors. Here are a few parameters that will go into determining how much you pay for first home buyer insurance:

  • Location: The state you live in plays an enormous role in the cost of homeowners insurance. For example, the average policy costs $3,519 per year in Oklahoma but just $376 annually in Hawaii. You might also pay less if you live close to safety features like fire hydrants and police stations.
  • Home value: A $200,000 home will be much cheaper to insure than a $600,000 home because the replacement value is much lower. As a general rule, the more expensive your home is, the more expensive your insurance will be.
  • Deductible: Your deductible is the amount you pay out of pocket if you file a claim on your policy. If you are willing to have a higher deductible, you will likely pay less in premiums, since you are willing to pay more if you file a claim. Generally, the higher your deductible, the lower your rate.
  • Claims history: If you have filed a claim on a prior insurance policy, like a renters insurance policy, that may affect the price of your homeowners insurance.
  • Coverages: Choosing higher coverage limits and adding optional coverages will typically increase your premium.
  • Personal information: Some personal information, like your credit rating, age and marital status, can affect how much you pay for your insurance.

The best way to determine the cost of your first home insurance for your new home is to get quotes from several providers. This can help you compare each company’s coverages, discounts and prices.

When to buy homeowners insurance

At what point in the home buying process should you purchase your first-time homeowners insurance policy? While your policy cannot be effective before your closing date, when you become the legal owner of the home, you can get quotes in advance to be prepared to start your policy when you have a closing date.

Before making an offer on a home, you should know about how much insurance will cost by asking for quotes from providers. This will help ensure there are not any surprises when it is time to buy coverage. You can even work with your agent to get your quote ready for purchase so that once your closing date is scheduled, you can have your company start your policy as of that date.

How to determine the amount of home insurance coverage you need

Home buyers insurance policies can be personalized to better meet your needs. But how do you determine what those needs are?

The most important determining factor in the amount of home insurance coverage to purchase is the requirements from your lender. Ask your mortgage company what their minimum coverage requirements are before purchasing a policy to make sure your bases are covered. You will likely need to purchase enough dwelling coverage to pay off the loan if your home is destroyed.

However, in addition to the minimum coverage required by your lender, you may want to purchase additional dwelling coverage, optional endorsements or increased liability coverage to provide more protection.

To help decide how much homeowners insurance you need as a first-time buyer, you may want to:

  • Research local building costs to see how much it would cost to replace the home: Some areas of the country have higher costs for materials and labor that could impact how much it would cost to repair or rebuild your home.
  • Check to see if your new home meets local building codes: If not, you may need to add ordinance and law coverage to your policy, to protect your finances against the costs of bringing your home up to code after a claim.
  • Take inventory of the furniture and belongings you intend to move into the home: You do not need to figure out the exact value of your belongings — your personal property coverage defaults to between 50% and 75% of your dwelling coverage. But knowing roughly how much personal property you have may help you decide if you need to add more coverage.
  • Think about your liability exposure: If you have a pool, trampoline, playset, pets or have guests in your house often you may want to increase your liability coverage. This coverage protects you from the costs associated with injuries or damage to the property of others that you are found negligent for.
  • Find out what your local living costs would be if your home became temporarily uninhabitable: Most home insurance policies cover additional living expenses automatically, but knowing what costs you might incur if you cannot stay in your own home due to a covered loss could help you decide if more coverage is necessary.

While this might seem overwhelming, a licensed insurance agent can walk you through each step. Insurance companies have tools to help determine how much your home would cost to rebuild and can help you decide what additional coverages and levels are right for your situation.

How to get the best first-time homeowners insurance rate

Although price is not the only factor to consider when buying a home insurance policy, finding the coverage you need for a low price is often a priority. There are steps you can take to find a competitive premium on the coverage you are looking for.

Look for discounts

Most companies offer discounts that can help you lower your premium. Buying your auto insurance from the same company as you buy your home insurance will often result in a multi-policy discount, which can save you money on both policies. Other common homeowners insurance discounts include savings for new roofs, hail- or wind-resistant roofs, paperless policies and security systems.

Compare quotes

Getting quotes from several different companies can help you find a more competitive rate for your home insurance. Every company has different rates and prices can vary greatly. Each company will weigh your rating factors differently. For example, if you have a prior claim, you may find that one company surcharges the claim much more heavily than another.

Take advantage of any previous history of insurance

If you have had a prior property insurance policy, like a renters insurance policy, be sure to let your agent know. Having continuous insurance can often help lower your premium. If you were previously living with a family member — your parents, for example — and were covered under their policy, that can also count as continuous insurance.

How to keep your homeowners insurance rate low

Once you have signed up for a first-time home buyer’s insurance policy, you may notice your premium changing at your annual renewal. This can happen for a few reasons. The price of labor and materials may have increased in your area, which can increase the amount of dwelling coverage you have. Or perhaps you filed a claim, which may be raising your premium. Additionally, insurance companies file new rates every year, and even if nothing else has changed, the new rates might impact the cost of your policy. However, there are steps you can take to help keep your insurance premiums in check:

  • Avoid filing claims unless necessary: Although your insurance is designed to protect your finances, filing too many claims can have a negative impact on your premiums. It may be best to avoid claiming minor damages that you can easily pay for out of pocket.
  • Keep your credit score high: Although some states prohibit the use of your credit score as a rating factor, most do look at your credit history when rating your policy. A higher score generally means lower premiums.
  • Stay with your insurer to take advantage of loyalty discounts: Shopping for a new carrier might help you find a lower premium, but you could also miss out on loyalty discounts if you change providers too often.
  • Review your policy annually to see if any updates are needed: If you have updated your home or added safety measures, you may need to update your coverage or discounts.
  • Invest in disaster-proofing upgrades like storm shutters or a modernized electrical system: Especially if you live in an area prone to storms, these mitigation measures can lower your premium and help to lessen the risk of damage.

Agents and licensed insurance professionals can help you choose appropriate coverages and levels, as well as help you find discounts that could lower your premium. If you are unsure what kind of coverage to purchase, what options are best for you and what discounts you qualify for, working with an agent might be helpful.

Frequently asked questions

Do I have to buy insurance for my first home?

Homeowners insurance is not required by law, but if you have a mortgage or any other type of home loan, you will need to purchase a homeowner insurance policy. Even if you are buying your first home outright, insurance is often a wise purchase. Proper home insurance coverage can help you avoid financial devastation if your home is damaged or destroyed.

Why do mortgage companies require insurance?

When you have a mortgage, your lender has a financial interest in your home. If your home is damaged or destroyed, the mortgage company needs proof that you will at least be able to pay off your loan. This is why lenders require proof of insurance and often set minimum limits for your dwelling coverage.

What is the best home insurance company for first-time buyers?

The best company will depend on your individual needs and preferences. Some home buyers might want a company with a highly-rated digital app. Others might want the lowest price possible, and still others could be looking for a specific optional coverage to fit a particular need. Understanding what you need from your policy and getting multiple quotes might help you find a company that fits your needs.