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Homeowners insurance may protect your finances when covered perils such as a fire or tornado damage or destroy your home. Following a covered loss, your home insurance policy may help pay to rebuild your house and replace your personal belongings, up to your coverage limits, minus deductibles. In the U.S., homeowners pay an average of $1,383 per year for a homeowners policy with $250,000 in dwelling coverage.
If you are a new homebuyer, Bankrate’s guide to homeowners insurance may help you understand what standard home insurance policies include, what optional coverages you might need and how to buy homeowners insurance.
Steps to buying homeowners insurance
Buying homeowners insurance may be simpler than you think. Depending on the home insurance company you choose, you may be able to buy homeowners insurance entirely online. These five steps may be a good starting place if you’re wondering how to buy home insurance:
1. Determine what you need to insure
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 as well. 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, valuable collectibles, custom furniture and other valuables? Additionally, you’ll want to take stock of the replacement cost of detached structures like a pool, garage, shed or fence.
Take inventory of what you own and a rough estimate of what it is worth. This may help determine how much coverage you will need.
2. Research home insurance companies
Researching home insurance companies may offer you several advantages. Your research could give you a clear comparison of the coverage options available and the feature variations from one company to the next. One company may provide more coverage options that you prefer over another. Researching providers beforehand may also give you a better feel for the digital experience a company offers, such as navigating policy questions online or using a dedicated mobile app.
When conducting research to find the best home insurance companies for your short list, it may be helpful to look for companies with features that are important to you. These may include:
- A mobile app
- Web access
- Customer support by phone, webchat and/or through local agents
- A variety of potential discounts
- Endorsement options that fit your needs
You can check out customer reviews to learn more about how the company handles complaints and claims. J.D. Power releases a study each year ranking the top home insurance companies according to customer satisfaction. In addition, AM Best is a good source of financial strength ratings. Most insurance professionals recommend you narrow down your list of homeowners insurance companies to three to five insurers for comparison.
3. Compare quotes
The same type of home insurance coverage may vary in price based on the company and the number of discounts offered. Therefore, it may be a smart move to get quotes from different home insurance companies. Getting quotes is free — all it will cost you is time. You can 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 and 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 or would like some guidance in the process, you could call to get a quote from a licensed agent.
4. Explore coverage add-ons
A standard home insurance policy might not meet some homeowners’ needs. Most home insurance policies do not cover earthquake or flood losses. If you live in an area prone to earthquakes or flooding, you may need additional protection. Some insurers offer earthquake and flood endorsements or standalone policies. You may also be able to purchase flood insurance through the Federal Emergency Management Agency’s National Flood Insurance Program.
Some homeowners may also need additional personal liability protection. For example, if you have a swimming pool and often host pool parties for children, you may need to purchase an umbrella policy in case a child sustains an injury. Typically, homeowners policies impose payout limits for certain types of personal items such as collectibles, furs and jewelry. If you have expensive belongings, you might need to add a scheduled personal property endorsement to your home insurance policy.
5. Buy your home insurance
Once you round up your quotes and decide which homeowners insurance is best for you, it may be time to buy your home insurance. You will likely want to review the key coverage details of your policy so that you feel you are properly insured. A standard homeowners policy should include:
- 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 percent of your dwelling amount and covers damage to your detached garage, fences, sheds and other structures.
- Coverage C, Personal Property: This is usually 50 percent or 75 percent 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 to additional costs incurred 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, $5,000 or more and covers costs if a guest injures themself in a covered incident, but you are not legally liable.
Other policy options that may be worth reviewing are your deductible amount, any endorsements you would like added and payment options. If you have a mortgage, you will likely need to share the details of your mortgage company with your home insurer so that your coverage can be paid through your escrow account.
Once finalized, you will receive a copy of the declarations page and everything your policy covers. You have time to review it and make changes. If you approve it, you’ll sign up for the insurance policy based on the dates you choose. Payment is likely due at the time you sign for your coverage to begin, although each insurance company may have its own options for payments. On the other hand, if you have a mortgage, your home insurance will likely be paid through your escrow each month as you pay off your mortgage.
What does homeowners insurance cover?
Standard homeowners insurance policies may offer a range of financial protections. This protection typically extends to both the property itself and your personal belongings. While there may be variations in policies from one insurance company to the next, most standard HO-3 policies cover expenses related to:
- Rebuilding or replacing the structure of your home due to damage from a covered event
- Replacement of personal belongings due to damage from a covered peril.
- Liability protection, if someone visiting your home is injured in a covered peril, including if someone in your household or your pets causes the personal injury.
- Additional living expenses, if you are required to move out of your home during repairs from a covered event.
- Financial protection for other structures on your property, such as the fence, shed and detached garages if they are damaged by a covered event.
The covered events, or perils, included in policies are typically fire, wind, hail, smoke, ice, burglary and theft, and possibly others. Keep in mind, standard homeowners policies do not usually include earthquake or flood damage coverage. These coverages typically require separate endorsements or policies altogether.
Frequently asked questions
Most insurance professionals recommend you start shopping for home insurance as soon as you submit a contract on a new home. Some lenders will not accept a mortgage application unless you already have a homeowners policy or can provide a home insurance binder. A home insurance binder serves as temporary proof of insurance until the insurance company issues your policy.
There are several ways to save on homeowners insurance. You can start by comparing quotes from several insurers to find the best price with the coverage you want. It may help to look for savings, such as home security systems and multi-policy and autopay discounts. Some homeowners may consider raising their deductible if their 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 typically costs the least, while guaranteed replacement cost is typically the most expensive.
If part (or all) of your home or property is damaged or lost in a covered peril, there are three ways your homeowners insurance may pay to rebuild or replace your property’s damages:
- Actual cash value is typically 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 up to the coverage limit of the policy, minus your deductible.
- 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 should pay to rebuild it as before, even if it costs more than $300,000.
State and federal laws do not require homeowners to purchase home insurance. However, if you finance a house, the lender will likely require you to carry homeowners insurance. If your home is paid off, you do not have to have home insurance. However, most insurance professionals recommend insuring your home even if it is not mandatory — the cost of a homeowners policy is typically much lower than paying for the damage out of pocket should a covered peril occur, especially in a total loss situation.