Homeowners insurance is one of those things you get but wish you never have to use it. A house is most families’ biggest asset, so finding a policy that protects it in case of an accident or natural disaster, is a big deal. If you recently bought a house or you are thinking about switching providers, check our step by step guide on how to get the right coverage.
Why You Need Homeowners Insurance
Having homeowners insurance is a smart financial decision, especially if you find yourself in a situation you can’t control and that can cost you a lot of money. Unexpected incidents such as natural disasters or someone breaking into your home and stealing your possessions do happen and could result in costly repairs or having to pay out of pocket to replace your losses. Other events where your home insurance could have your back is if someone gets hurt on your property and sues you, even if you were not responsible for the accident.
How to Shop for Homeowners Insurance in 8 Steps
Step 1: Understand homeowners insurance
Homeowners insurance coverage will vary according to the policy you select and the type of property you have. When you look at types of policies, the protection that insurers provide is divided between “named perils” and “open perils.” If your policy is for named perils, it will only cover the events listed in the contract. On the contrary, an open perils policy will have a list of events it won’t cover, because everything else should be fair game. Typically, home insurance includes interior and exterior damages, liability and loss or damage of your belongings. Most policies cover some natural disasters, but earthquakes and floods damages are not typically included and you will have to purchase additional coverage or a separate policy altogether. Read your policy carefully, never assume you have a certain coverage, because what’s written in it is what your insurer will cover.
Types of Homeowners Insurance Coverage
- Dwelling protection: If your home is damaged by fire, lightning, hail or wind, this coverage will pay the cost of repairing and rebuilding your property.
- Other structures protection: It provides coverage for structures like a detached garage or a fence.
- Additional living expenses coverage: If you are temporarily displaced from your residence while it gets repaired for a covered loss, this endorsement will help with expenses like housing and meals.
- Personal property coverage: If items inside your home are destroyed or stolen, this will cover the cost of it to replace them. This coverage might even apply to items stolen or damaged outside the house, like a laptop stolen from a college dorm or a hotel room.
- Liability coverage: If there’s an accident at your house and someone who doesn’t live with you gets hurt or their property gets damaged, your home insurance can prevent you from paying large medical bills and legal expenses out of pocket.
- Medical payments coverage: It helps pay smaller medical bills if someone who doesn’t live with you gets injured in your house.
Homeowners Insurance Premiums
Factors such as the crime rate and location of the neighborhood you live in and your house’s building materials will be considered by insurers to determine your policy’s cost, also known as premium. The type of coverage you choose and add-on coverages will also affect the rates you get.
Here are some homeowners Insurance factors that insurers will consider to price your premiums:
- Square footage
- Neighborhood and crime rate
- Homeowner’s past claims
- Homeowner’s credit
- Past claims on property
- Homeowners personal belongings
- Potential dangers at the home, such as an unfenced pool or a trampoline
- Year of construction
- Type of construction
- Roof type and age
- Number of rooms
- If applicable, garage type
- Foundation type
- Security systems, burglar alarms and smoke detectors
- Type of heating and air conditioning systems
How Much Coverage Do You Need?
- Actual cash value (ACV): Equals the replacement cost of property minus the depreciation, which is less than the cost it would take to replace an item. Applying ACV to items in a policy generally lowers the cost of premiums, since you’ll be paid less in claims.
- Replacement cost value (RCV): It considers how much money it would cost to replace a damaged or destroyed property in today’s market. Applying RCV to property in a policy generally ups the cost of the premium, since you’ll be paid the full amount you need to replace items in today’s market.
- Guaranteed replacement cost/value: This is a policy valuation option that pays the full cost of replacing property, even when the amount exceeds policy limits. Applying this to a policy generally increases the cost of premiums even more than RCV.
Step 2: Find out what your insurance needs are
Coverage levels are customizable, you can adjust deductibles and add-ons depending on how much coverage you can afford. There is no right or wrong answer about how much home insurance you need, but a good starting point is to know what are your risks, what items you need to protect and how much would it cost to replace your property and belongings.
You can start by taking a look at the most common policy known as the HO-3. The six core coverages are dwelling, personal property, personal liability, medical payments to others, loss of use and other structures. The HO-3 is an open perils policy, which means that the coverage will kick-in under practically any hazard, except for those explicitly listed in the policy.
But even with an open perils policy like the HO-3, there may be risks specific to your home’s location or your individual situation that will require you to add other coverages. An example of that are earthquake and flood insurance, which are not usually included in the basic policy.
We recommend adding an endorsement for earthquake insurance for those who live in areas with frequent seismic activity. If you live in an area that is prone to flooding, you may have to get a separate flood insurance policy through the National Flood Insurance Program (NFIP) since many insurers won’t offer this coverage.
You may also want to add extra protection for valuable items such as jewelry and art pieces that exceed the policy’s coverage limit.
Step 3: Decide if you want to buy online or with a agent
The next step is to decide if you want to buy your policy online or call an agent to help you out. When shopping around, you should look for insurers that allow multiple ways to reach them and file a claim. Whether you decide to buy your homeowners insurance with an agent or to do it yourself online, we recommend comparing companies, which is our next step.
Step 4: Get quotes
Shopping around takes a longer time, but it will assure you that you won’t miss a great deal or discount and have the right coverage. If you are ready to start comparing rates, you should compare quotes and diversify your options with a list of nationwide companies and local insurers. If you prefer using an agent or broker, ask for at least three quotes from different companies. Getting more than one estimate not only allows you to compare, but could also help you have leverage to negotiate for a better price and coverage.
Pro tip: if you already have a car insurance company, we recommend calling them to ask for bundling options with your homeowners insurance, to see if they are a good fit for your needs. This could also save you some money.
Information that you will need to get homeowners insurance
- Identifying information such as social security number, birthdate and occupation
- Property history
- Home address and contents
- Liability questions
- Renovations and repairs, if any
- If you are under a mortgage, lender requirements
- Assessment of home value with current condition and amenities
- Insurance inspection reports
Step 5: Compare price and policies
Now that you have more than one company and coverage it’s time to compare them. But make sure that you are not only evaluating the price. Make sure that you are comparing similares coverages, and take a good look into what is included in each coverage as there might be some exclusions in the cheaper options.
Remember that in step 2 we recommended understanding what your needs were? Here it is where you get that list of requirements to check that the policy you choose meets those needs. The most comprehensive option may come with a higher premium, but it gives you the right amount of protection.
Step 6: Choose your insurer
If you’ve narrowed it down to two or three providers, now you evaluate their financial strength, customer service and satisfaction, as well as how they handle claims. Questions such as can you file a claim online, how easy it is to do so, do you need an agent to complete the request and the average time it takes to do so are important.
Once you decide the best insurer for you, check for discounts to see if they apply to you. Some home insurers, for example, will give you a discount if you pay the annual premium in advance. Before you finalize the process on how to buy homeowners insurance, those details could be an essential determinator.
Step 7: Finalize details
So you already chose a company and selected your policy, you are ready to complete the steps to get your homeowners insurance. If you have a mortgage, you will be asked to revise the following:
- Premiums: Lenders could require you to pay for your home insurance in advance to close your mortgage.
- Deductibles: Lenders need to know how much you would have to pay out of pocket before the insurance company pays you for your loss. Consider that the higher the deductible, the lower your premium.
- Choosing coverage limits: Lower limits minimize your deductible but be mindful of how much you’d be able to pay out of pocket to cover your costs. Get enough coverage to rebuild your home, replace your personal property, cover injuries and damages on your property and reimburse your living expenses if you lose your home.
- Effective day: When the coverage starts covering your property.
Step 8: Be ready for an inspector to visit your property
Some insurers might need to inspect your home to assure that what you reported is legit. If something were not reported, the inspector would take notes and you might see a change on your next bill. So it is best to make sure that you documented everything needed to get the right premium.
But if you forgot to mention things such as having a security system or fire extinguisher, you may be in for a pleasant surprise, as these two things might get you discounts on your policy for lowering risks. You should double-check with the inspector if there might be other deals that you did not consider when asking for a policy.
Now that you are aware of everything you need to know about the homeowners insurance buying process, we recommend checking out the best homeowners insurance companies and cheapest homeowners insurance companies to start analyzing your options. If you are ready to get a quote, check out our comparison tool.