How to buy homeowners insurance

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Buying a home is a large commitment. Homeowners insurance protects you by offering financial protection for various circumstances that could result in costly damage to your property. Events such as weather damage, theft, fires and guests’ injuries can result in extensive costs, and you would want to avoid covering those expenses out of pocket.

The average annual cost of homeowners insurance is just over $100 per month for $250,000 in dwelling coverage — far cheaper than rebuilding your home or replacing all your damaged or stolen contents yourself. Finding the right coverage amount and knowing how to purchase homeowners insurance are two important steps towards being financially protected for the unexpected.

What does homeowners insurance cover?

Homeowners insurance covers damage caused to your dwelling, the detached structures on your property and your belongings. A home insurance policy also reimburses living expenses if you cannot remain in the home while it is refurbished from a covered claim. Your policy generally also covers liability-related situations such as court costs, defense fees and judgments (within limits) that occur.

The key is whether the incident is a covered peril. Homeowners insurance typically covers losses and expenses due to perils such as smoke, fire, wind, ice, hail, burglary and vandalism (to name a few). Other events such as floods and earthquakes are usually excluded from a standard homeowners insurance policy. They require a separate policy or endorsement for the specific coverage.

Steps to buying homeowners insurance

Purchasing a homeowners insurance policy is fairly easy. Depending on the home insurance company you choose, you may be able to do everything from start to finish online. Follow these four steps on how to buy home insurance:

1. Take stock of what you are insuring

The first step is to get an idea of what valuables you plan to insure. Besides the home’s structure, homeowners insurance covers your contents inside. Does your home feature many upgrades, such as stainless steel professional kitchen appliances and granite countertops? Does your home have hardwood floors? Do you have jewelry such as diamonds and watches that are worth thousands of dollars?

Take inventory of what you own and a rough estimate of what it is worth. This will help determine how much coverage you will need.

2. Research home insurance companies

There are plenty of carriers out there to insure your home. It can be overwhelming to know which property insurer to choose. If you currently have car insurance, consider getting a home insurance quote from your car insurer — you will likely get a good discount for bundling your insurance policies.

When looking at other insurance companies to create a short list, look for companies with features you like, such as:

  • A mobile app
  • Web access
  • Offers customer support by phone, webchat and/or through local agents
  • Provides customers with a variety of discounts

Check out customer reviews to learn more about how the company handles complaints and claims. J.D. Power releases a study rating the top home insurance companies according to customer satisfaction. In addition, AM Best is a good source of financial strength ratings. Narrow down your list of homeowners insurance companies to three to five insurers for comparison.

3. Get quotes

The same type of home insurance coverage varies in price based on the company and the number of discounts offered. Therefore, it is a smart move to get quotes from different home insurance companies. Getting quotes is free — all it will cost you is time. Grab your list of insurance providers you researched and visit their webpages to get an online quote or call them to speak with a licensed agent.

To get a home insurance quote, you will likely need to provide:

  • Your home’s address
  • Age of your home
  • Square footage of your home
  • Details about your roof type, such as composite or asphalt
  • Your roof’s age
  • Number of bathrooms in the home
  • Construction materials, such as floor type, countertop materials and other finishings
  • Type of garage (built-in or detached)
  • Foundation type (basement, slab or crawl space)
  • Security features such as deadbolts or alarm system

Most insurance companies have easy-to-follow online quote tools. If you have any questions and would like some guidance in the process, you could call to get a quote from a licensed agent.

4. Buy your home insurance

Once you round up your quotes and decide which homeowners insurance is best for you, buy your home insurance. You will want to review the key coverage details of your policy so that you feel you are properly insured. These details are:

  • Coverage A, Dwelling: This coverage is the calculated cost to rebuild your home. The cost is different from your home’s market value.
  • Coverage B, Other Structures: This coverage is usually 10% of your dwelling amount and covers damage to your detached garage, fences and sheds.
  • Coverage C, Personal Property: It is usually 50% or 75% of your dwelling coverage limit and covers contents within your home and contents away from your home, like in a storage unit.
  • Coverage D, Loss of Use: This coverage applies if your home is uninhabitable due to a covered claim and you must live elsewhere.
  • Coverage E, Liability: This covers costs related to legal fees and lawsuits you may incur if someone is injured on your property or if you cause damage to someone else’s property. Different coverage options apply, but usually limits are $100,000, $300,000, or $500,000. Some property insurers may offer higher coverage limits.
  • Coverage F, Medical Payments: This can be set at $1,000 or $5,000 (or more) and covers if a guest injures themself, but you are not legally liable.

Other policy options worth reviewing are your deductible amount, any endorsements you would like added and payment options. If you have a mortgage, you will need to provide your mortgage company to your home insurer to pay your coverage through your escrow account.

Frequently asked questions

How can I save on homeowners insurance?

There are ways to save on homeowners insurance. Start by comparing quotes from several insurers to find the best price with the coverage you want. Look for savings, such as home security systems and multi-policy and autopay discounts. Consider raising your deductible if your budget allows — you will have to pay more in the event of a claim, but your annual premiums will be lower. Additionally, look at how your payouts are handled. An actual cash value policy costs the least, while guaranteed replacement cost is the most expensive.

What is the difference between cash value, replacement cost and guaranteed replacement cost?

If part (or all) of your home or property is damaged or lost, there are three ways your homeowners insurance will pay to rebuild or replace your property’s damages:

  • Actual cash value is the least expensive to buy and the smallest payout — you will be reimbursed for the actual value of your property, with depreciation deducted. This means you may need to find older versions that match what you lost or pay the difference in purchasing new goods out of pocket.
  • Replacement cost value will pay you to replace your property with new versions of what you lost.
  • Guaranteed replacement value means that your home and property will be covered for their replacement values even if those values are higher than the amount of insurance you have. For example, if you insure your home for $300,000 and a covered peril destroys it, your policy will pay to rebuild it as before, even if it costs more than $300,000.

Do I need homeowners insurance?

Homeowners insurance is likely mandatory if you have financed your home and you are paying a mortgage. Your bank or mortgage lender will require you to have home insurance. If your home is paid off, you do not have to have home insurance. However, it is advisable to insure your home even if it is not mandatory — the cost of a homeowners policy is much lower than paying for the damage out of pocket, especially in a total loss situation.

Written by
Cynthia Paez Bowman
Personal Finance Contributor
Cynthia Paez Bowman is a finance and business journalist who has been featured in Bankrate, Business Jet Traveler, MSN, CheatSheet.com, Freshome.com and TheSimpleDollar.com. She regularly travels to Africa and the Middle East to consult with women’s NGOs about small business development and works with select startups and women-owned businesses to provide growth and visibility.
Edited by
Senior Insurance Editor