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A home is one of the largest financial commitments you’ll make, so it’s important to protect it. That’s where homeowners insurance comes in.
To ensure you’re adequately covered in case of the unexpected, you’ll need to know exactly how homeowners insurance works and how to buy it. Various factors affect your premium, including the insurance carrier, the coverages you buy, and your home’s location and replacement cost.
Here’s what you need to know about buying homeowners insurance:
- How to buy homeowners insurance
- What is homeowners insurance?
- What does homeowners insurance cover?
- What you shouldn’t do when buying home insurance
- Homeowners insurance FAQs
How to buy homeowners insurance
Before moving into your home, you’ll want to choose a homeowners insurance policy that fits your needs. Here are the steps you should take to do so:
Decide how much coverage you want
The market value of your home isn’t necessarily the same as the cost of rebuilding your home. When determining your dwelling coverage limit, calculate the cost of rebuilding your home. You can estimate this amount by multiplying your home’s total square footage by the local per-square-foot cost to rebuild.
You’ll need to consider your ideal coverage limits for each of the six coverages in your home insurance policy. If you’re unsure, it’s a good idea to speak to an insurance agent to find out what level of coverage is best for you.
Research insurance carriers
It’s essential to find an insurance provider that meets your needs. Research insurers that operate in your area, offer discounts, have good customer service, and a solid reputation with few complaints. You may also want to check when and how you can file a claim to ensure it’s convenient for you.
Getting at least three quotes from different home insurance carriers is a smart move, as rates can vary widely from one provider to the next. After doing your research, make a list of your top insurers and request a quote from each one.
You can typically get quotes online in just a few minutes, but you can also call to speak with an insurance agent who can offer recommendations and tailor your quote based on your needs. When requesting quotes, be sure to use the same coverage limits and deductibles for a true apples-to-apples comparison.
Ask about discounts
Discounts can lower the cost of home insurance. Most insurers offer multiple discounts. You can typically get discounts for the following:
- Bundling policies
- Paying premiums in full
- Installing safety devices, such as smoke alarms
Choose your deductible
Your deductible is the amount of money you pay out of pocket before your insurance pays out for an approved claim. A higher deductible typically means a lower premium, while a lower deductible will make your premium higher.
Consider your budget when determining your deductible. Choose an amount you can reasonably afford to pay should you need to file a claim.
What is homeowners insurance?
Homeowners insurance pays for damage and losses that occur on your property. These events are called perils, and your homeowners insurance policy will cover certain ones, such as fires and theft.
For instance, if a fire damages part of your roof, your insurance carrier will pay for it — minus your deductible — after approving your claim. The amount you’ll receive will depend on your coverage limits.
What does homeowners insurance cover?
Standard homeowners insurance policies typically provide coverage for rebuilding or replacing the structure of your home due to damages caused by covered perils. Your policy also provides liability coverage, protection for your personal property, and additional living expenses when your home is undergoing repairs.
Here’s an overview of the six different coverages in a typical home insurance policy:
|Type of coverage||What it covers||Coverage amount|
|Dwelling||Damage and destruction to the home||You get to choose
(subject to minimums required by your mortgage lender)
|Other structures||Structures on the property that aren’t attached to the home, including sheds, fences, and free-standing garages||About 10% of dwelling coverage|
|Personal property||The cost to repair or replace damaged or stolen personal items, like furniture, appliances, clothing, and electronics. Also usually includes off-site storage units.||Often between 50% to 70% of dwelling coverage|
|Loss of use||Hotel expenses and some other living expenses while your house is being repaired||About 20% of dwelling coverage|
|Liability||Legal expenses if you are sued for any injuries or property damage that you or a family member cause to others on your property||Limits usually start at $100,000|
|Medical payments||Direct payments of medical bills for someone who was injured on your property||Usually between $1,000 and $5,000|
Here’s a closer look at the types of coverage you’ll usually get with a standard homeowners insurance policy:
- Dwelling coverage: Also known as Coverage A, dwelling coverage will pay to repair or rebuild your home as long as the damage is due to a covered peril. Your coverage amount should ideally be the full replacement cost of your home or close to the cost of rebuilding your home.
- Other structures coverage: Also known as Coverage B, this coverage protects detached structures such as fences, pools, and sheds. The coverage limit is usually a percentage of your dwelling coverage.
- Personal property coverage: This part of the policy, known as Coverage C, will pay to replace personal belongings such as appliances, clothing, and furniture if a covered peril damages or destroys them. There’s a limit to the amount your insurer will reimburse, and your reimbursement will either be based on an item’s replacement cost or actual cash value.
- Loss of use coverage: Also known as Coverage D, or additional living expense coverage, this will pay for any reasonable living expenses when a covered peril makes your home uninhabitable. Your insurer may cover expenses like food, hotel stays, and storage costs.
- Liability coverage: Coverage E pays for legal expenses up to a certain limit if a visitor injures themselves on your property and sues you. You can choose to purchase higher limits if you have more assets.
- Medical payments coverage: Your insurer will pay for medical expenses as part of Coverage F if someone injures themselves on your property.
What you shouldn’t do when buying home insurance
Now you know what to do when choosing a homeowners insurance policy. But knowing what not to do is equally important. Here are a few common missteps:
Not purchasing enough insurance
It’s crucial to have enough insurance to replace your home if it were destroyed. Not purchasing enough insurance means you’ll have to pay out of pocket for costs above your policy’s limit. While you’ll save money on your insurance premium, you’re taking on a lot of risk by getting less coverage.
Not shopping around
It’s a good idea to shop around for insurance and get quotes from multiple insurers. That way, you can choose a policy that’s the best fit and price for you. If you don’t comparison shop, you may end up paying much more than you have to for a policy.
Only considering price
The cheapest insurance isn’t always the best, so consider factors beyond price when it comes to your homeowners insurance policy.
Look into the following factors for each insurance company you’re considering:
- Insurer’s financial stability
- Customer service responsiveness
- Coverage limits and deductibles
- Covered perils
- Available discounts
- Types of coverage offered
Homeowners insurance FAQs
What is the first step when buying homeowners insurance?
The first step to take when it comes to purchasing homeowners insurance is to determine what your coverage needs are. For instance, to ensure adequate protection, you’ll want to be covered for the entire cost to rebuild your home and replace your personal property. So, you’ll want to find a policy that has coverage limits that are at or above that amount.
To figure out your personal property coverage limit, create a home inventory, writing down the cost of each item you own. Add up the total cost, and consider adding a cushion to this amount for your personal property coverage.
What types of insurance should I purchase when buying a house?
Aside from a basic homeowners insurance policy, you should consider flood and earthquake insurance, especially if you live in an area susceptible to these types of natural disasters. A standard home insurance policy doesn’t cover these perils — you can typically purchase these as separate policies or as riders to your home insurance policy.
Here are some other insurance coverages you may want to consider:
- Scheduled personal property coverage for high-value items, like an engagement ring
- Water backup coverage to protect your home from sewer backups
- Extended or guaranteed replacement cost coverage for added protection if a covered peril damages your home or belongings
Kathryn Pomroy contributed to the reporting for this article.