How to buy homeowners insurance

A young couple lifting a couch and moving into a new place. — Logan Fincher/Bankrate

Buying a home is probably one of the largest and most important investments of your life. Ensuring that your investment is adequately covered and your family is protected from financial despair after a disaster is an essential step in completing your home purchase. However, finding the right homeowners insurance policy can sometimes feel cumbersome due to the multiple levels of coverage and policy types available. Luckily, the following Bankrate guide on buying homeowners insurance is designed to help homebuyers understand what type of policy and coverage selections are right for you.

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Key takeaways

The average cost of homeowners insurance per year is $1,428 based on a policy with $250,000 in dwelling coverage.
Because a standard home insurance policy may not cover all of the risks your home needs protection from, it is important to explore all of the coverage and policy types available to you, particularly if your home is in an area prone to earthquakes and flooding.
Fire, wind, hail, smoke, ice, burglary and theft are the perils commonly covered by a standard HO-3 insurance policy.

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. Because personal property coverage is a percentage of your dwelling coverage amount, it’s important to know what it would cost to replace your personal belongings if you experience a total loss on your home. 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? Knowing what valuables you have and their costs may help you determine if you need additional coverage, as home insurance policies can limit coverage on high-value items like jewelry,

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

On average, homeowners pay $1,428 annually on homeowners insurance for a policy with $250,000 in dwelling coverage. The same type of home insurance coverage may vary in price based on the company, your home’s location and the number of discounts offered. Therefore, it may be a smart move to get quotes from different home insurance companies. Getting quotes is typically free, though you may need to spend some time shopping around. 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
Your home’s proximity to a fire department and fire hydrant
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 require 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.

There are many coverage types available that could be applicable to your specific needs as a homeowner. Sewer/water back-up coverage provides protection against damage caused by your drains backing up or your sump pump failing. Identity theft coverage can provide funds for legal fees and other costs associated with your identity being stolen. A business property endorsement may be helpful if you run a home business by increasing coverage limits for inventory and other business property. Other add-ons available may include electronic data recovery, specific valuables coverage for musical instruments, sports equipment, antiques, art and other valuable items, and even coverage for your outdoor equipment.

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 the best home insurance company for you, it may be time to buy your policy. You will likely want to review the key coverage details of your policy so that you feel you are properly insured. A standard HO-3 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 70 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 temporarily 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 and are found legally liable. 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, your insurance policy will go into effect 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. It is important to keep in mind that any rate changes from your insurance company or policy changes you make that affect your insurance premium will also impact your escrow payment.

What does homeowners insurance not cover?

Keep in mind, standard homeowners policies do not usually include earthquake, sinkhole or flood damage coverage. These coverages typically require separate endorsements or policies altogether. Additionally, a standard policy typically excludes protection against damage caused by a sewer back-up, neglect, mold, power surges, nuclear hazards and local ordinances. Regular maintenance related issues, along with standard wear and tear are also not covered.

The covered events, or perils, included in policies are typically fire, wind, hail, smoke, ice, burglary and theft, and possibly others.

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.
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- 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 may 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.
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- 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.
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