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Unless you work in the insurance industry, you probably have a lot of questions about buying a homeowners insurance policy. Understanding more about your options, how insurance companies operate and how home insurance quotes work helps you get the best possible deal.
The standard homeowners insurance policy is fairly complex, but buying one doesn’t have to be complicated. Start by asking questions about the basics (e.g., “What does home insurance cover?” “How much home insurance do I need?”), gathering pertinent information like quotes and reviewing your options. While some of the following points might not apply to you, this home insurance guide offers a generalized approach to reviewing and selecting the best home insurance for you.
Why do you need home insurance?
Homeowners insurance is a policy that covers residential buildings and the items kept in those buildings (up to the policy limits). The standard homeowners insurance policy also protects the homeowners from liability.
Homeowners need this type of policy because:
- Their mortgage lender requires that they carry it
- They need liability protection
- They need a way to rebuild or repair their home after destruction by a covered cause like a fire
- They need a way to replace their belongings if they’re destroyed by a covered cause or stolen
Without home insurance, owners could face steep repair costs. Replacing a roof often costs between $5,346 and $10,645, according to HomeAdvisor. Imagine spending that much money out of pocket after a storm. With home insurance, you only have to pay a deductible (usually around $500) for your new roof.
Plus, it pays to keep a homeowners insurance policy in place. Letting home insurance coverage lapse does more than just expose you to high repair costs. It also makes you look like a bigger risk to other insurance companies. When your policy lapses, other insurance providers might conclude that you either can’t make your payments on time or are unreliable. Either way, it can prevent you from getting a good policy at an affordable rate. Some companies won’t approve you for a policy at any price because they see you as a risk.
The amount you’ll pay for the protection you need depends on where you live, but expect at least a few hundred dollars each year for your homeowners insurance policy.
What should I know when buying home insurance?
To get the best home insurance as easily as possible, it pays to prepare. Before you start collecting home insurance quotes, gather:
- Personal information like your driver’s license and social security number
- Your address (if you recently moved or are moving and don’t know it off the top of your head)
- Information on any recent repairs or renovations to the house, including the cost of those repairs or renovations
- Information about your home’s current condition (Is the roof old? Does the deck need to be replaced? Is the water heater leaking?)
- A home inventory
Creating your home inventory
Your home inventory should list everything you have in your home or plan to store there. Include prices for each item. Whenever possible, attach receipts or valuations to your home inventory to show what the items are worth. If the item has a model number or serial number, include those too.
It sounds exhausting to make this home inventory, but if you do and you present it to your home insurance provider, you guarantee that everything on the list has coverage. Your agent can advise you if any high-value items (like jewelry or art) need an additional rider to be fully covered. If you ever have to make a claim, this inventory can also help you and your provider identify how much needs to be replaced.
Scheduling your insurance inspector’s visit
Insurance companies generally send out an inspector before your coverage starts or within the first month of coverage. The inspector’s job is to identify potential risks that could cause you to file a claim in the future. Inspections can also help you be eligible for certain discounts. The provider will generally contact you to schedule a visit so you can be home to let the inspector in, but inspections can also happen without warning. Inspections usually take a few minutes to a few hours depending on how big your property is.
Learn how to read your policy
To ensure you have the right amount of coverage, review your home inventory with your agent. Putting in the extra work before you purchase your policy protects you against being underinsured. Unfortunately, most people only find out they don’t have enough coverage after disaster strikes. Become familiar with what each section of your policy covers so that you can refer to it if you need to make a claim.
What should my homeowners insurance policy cover?
According to the National Association of Insurance Commissioners (NAIC), most home policies have at least six sections that define types of coverage. If you’re wondering, “What does home insurance cover?”, familiarize yourself with the terms set out in all six sections to better understand your coverage levels.
Section A: Physical damage to your house
Section A explains how much you will get paid when your house is seriously damaged by a covered cause. Many people assume their home insurance protects them against flooding, but most standard policies specifically exclude flood damage. Check which causes are covered by your provider.
If you want to cover the full cost to rebuild your home, make sure this section gives you that option. After you agree to the policy, the insurance company will not pay you more than the amount specified in this section.
Section B: Physical damage to other structures
This section covers other structures on your property. This can include sheds, detached garages and fencing.
Section C: Personal property damage
Section C covers the items that you keep in your home. This can include everything from high-end stereo equipment to your children’s clothing. Like Section A, you have some flexibility here, so choose a coverage amount that makes you feel comfortable. Ideally, your policy can replace everything you own after a burglary or extensive damage to the house.
In most cases, insurance companies will assume that your personal property is worth about 50–75 percent of your home’s value. That means that if your home is valued at $300,000, a standard coverage plan will generally cover up to $150,000–$225,000 in personal property coverage. Read your policy to see how much personal property coverage you have and go over your home inventory with your agent to make sure it’s enough.
Section D: Additional living expenses
Section D tells you how much money you can get from the insurance company when you have to live away from your home because of a covered cause.
Let’s say that a fire fills your house with smoke and causes extensive damage. Your family has to move into a hotel during home repairs. This section specifies how much money you can get for those extra expenses, including your hotel bill and restaurant tabs because you won’t have access to your kitchen.
Section E: Comprehensive personal liability
Section E offers comprehensive liability insurance that protects you from the cost of a lawsuit if someone gets injured on your property or you or one of your family members cause property damage to someone else. It can help you cover the cost of a legal case if your neighbor trips and falls on your icy steps, for example, or if your daughter throws a ball through the neighbor’s window.
Section F: Medical expenses
If someone gets injured on your property, Section F of your insurance policy protects you from medical bills. While Section E helps with the legal feels, Section F can pick up the tab at the hospital. The average emergency room visit in 2017 costs $1,389, so this is an important part of your coverage.
Your homeowners insurance policy only applies when an incident explicitly listed in your policy occurs. For more standard policies, the NAIC’s home insurance guide says covered causes include:
- Civil unrest
- Falling objects like tree limbs
- Weight from snow, sleet and ice
Most home insurance coverage doesn’t extend to floods and earthquakes. If those are concerns for you, you’ll need to purchase add-on coverage.
Remember the basics: Homeowners insurance coverage
Your homeowners insurance coverage should cover:
- Physical damage to your house and other structures on your property
- Damage to your belongings
- Additional living expenses if you have to live somewhere else while your home is repaired
- Personal liability and medical expenses in case you are liable for an accident or injury on your property
Check your policy to see your limits, covered causes of damage and any exclusions to your policy you’d need add-on coverage for.
How can you identify coverage gaps in your policy?
Because standard home insurance policies don’t cover everything that could damage your property, you might be exposed. Without extra policies that cover these gaps in coverage, you don’t have any protection against some common disasters. The Insurance Information Institute reported that average flood claim was over $42,000 in 2018. Those coverage gaps can hurt. All told, make sure you’re putting other policies in place wherever your home insurance coverage leaves gaps.
Some of the most common gaps in standard insurance policies include:
- Acts of war or overthrow of the government
- Damage caused by animals, birds or insects such as termites
- Damage deliberately caused to the home
- Earthquakes, landslides, mudflows and other land movements
- Normal wear and tear
- Pollution damage
- Sufficient personal property coverage for high-value items
Evaluate your home insurance carrier options
Your homeowners insurance policy is designed to keep more of your money in your pocket when disaster strikes, but that doesn’t mean you’ll like paying your premiums and year after year. Fortunately, you can keep those premiums to a minimum by comparing home insurance quotes.
Your home insurance cost is unique to you depending on where you live, your home and what you own. The only way to know you’re getting the best home insurance price is to gather multiple home insurance quotes from different providers.
As you shop, ask potential carriers about bundling. Combining policies you need — like home and auto — can help you score significant savings.
How much does homeowners insurance cost?
The cost of your policy is going to depend on you. That said, knowing some averages can help you shop informed. The average homeowner in the United States pays just over $1,220 for their policy each year.
How much you’ll pay depends largely on where you live. States that are prone to natural disasters — like Florida and Louisiana with a high exposure to hurricanes — pay significantly more. Floridians top the country in homeowners insurance costs with average annual premiums of $3,575. Homeowners in protected states like Idaho and Utah only pay about $600 each year for their coverage.
What are the factors that impact my homeowners insurance policy?
Generally, the factors that impact how much you pay for home insurance include:
- Additional structures on your property
- Remodels you’ve completed that add value to it
- The age of your house
- The amount of personal property you want to protect
- The deductible you choose (a higher deductible lowers your premiums)
- Your credit score (in some states)
- Your home’s security and disaster resistance like storm shutters
- Your location, including your overall state, county and city’s risk for natural disasters and your home’s specific neighborhood
How to shop for your best-fit homeowners insurance policy
1. Consider coverage needs based on your life
Your phase of life should heavily inform which level of insurance you choose.
If it’s your first time buying coverage, you might want to opt on the cautious side, meaning you set high policy limits and pay a low deductible. Figuring out the cost of homeownership over time can be tricky, and this protects you from any major unexpected expense.
People who own multiple homes
Look at your additional living expenses coverage. If you could easily relocate to your other home, you might not need this protection.
People who own older homes
Don’t assume that because your home is aging you don’t need much coverage. You want to have enough homeowners insurance to be able to rebuild up to your current quality of life standards. Don’t skimp on coverage just because your home is older.
Young, single buyers
A young person who doesn’t have any children might not need as much coverage as a family. When you don’t need to worry about protecting children and other family members, then you can often raise your deductible, save more money and accept higher risk.
If you start a family, your insurance needs may change. Suddenly, you might not have an extra $500 to spend on home repairs if you’re spending more money on childhood necessities.
You might also need more protection from Section D of your policy, which covers additional living expenses if you can’t live in your home. A single young man or woman might not mind spending a week sleeping on someone’s couch, but your children will need a more stable environment, especially after a catastrophe that causes significant damage to their home.
As your children get older, you can adjust your insurance needs again. Depending on your financial situation, you might want to raise your deductible again so that you can save money on your monthly premiums. With fewer people relying on you for financial and emotional support, you might find that you can take a little more risk.
As you enter retirement, you might want to mitigate your risk. When you’re living on a fixed income, a high deductible can sting.
2. Find insurance professionals you can trust
If you want a good policy but you don’t want to do a lot of work to get one at a low price, consider using an independent insurance agent. Independent agents can browse policies from several companies. That lets them give you succinct information about your options so that you can choose a policy without doing much research on your own.
You can check a company’s credentials by contacting consumer agencies in your state. Agencies like Standard & Poor’s can also give you company ratings that will help you decide which ones you can trust.
3. Assess your add-on policy needs
Many homeowners find that they need additional coverage to protect themselves, their homes and their personal belongings. Additional and unique policies fill those gaps in coverage. The price of these add-ons can differ greatly depending on where you live, your home’s value and what you want to cover.
Additional coverage options
Many homeowners think that they are protected from flood damage, but it’s generally not included in homeowners insurance policies.
Flood insurance is typically available through the National Flood Insurance Program. It has two options, one that covers damages to your building with a maximum coverage limit of $250,000 and one that covers personal property with a maximum limit of $100,000. The average policy costs about $700 a year.
Flooding can happen anywhere, and water damage can be expensive when it destroys belongings or even a building’s structure. Flood insurance can reduce your risk of these expensive repairs, especially if you live somewhere with a high possibility of flooding. You can check your area’s flood map to see if you’re at risk.
Who should consider flood insurance?: Flood insurance is a good investment for anyone who lives in a high- or moderate- risk flood zone. Flood insurance is required if you live in a Special Flood Hazard Area, which is a location with a high chance of flooding.
Like with flooding, most homeowners insurance policies don’t include earthquakes. Some insurance providers offer earthquake coverage as an add-on policy. In California, homeowners can get insurance through the California Earthquake Authority.
Earthquakes can happen anywhere, but they’re most likely along fault lines. Depending on where you live, earthquake coverage can range from $100 to around $1,000 a year. To decide if you need your coverage, consider how much you could afford to replace if your home was damaged by an earthquake and your policy didn’t cover it.
Who should consider earthquake insurance?: An earthquake can happen anywhere, but earthquake insurance is most advised if you live along a fault line where earthquakes happen frequently or are likely to happen. You can evaluate your earthquake risk to help you make your decision.
Scheduled personal property
Often called a rider or floater, this additional coverage extends to expensive belongings such as art, jewelry and furs that exceed the typical personal property coverage limits of a home policy. Because some companies put limits on certain types of items like art or electronics, scheduled personal property is a good idea for making sure you have enough coverage for valuable items.
Unique policy types
Providers also have some unique types of coverage that apply to specific situations or desires that not everyone will have.
- Modified coverage forms: This is great for people who own older homes with replacement costs that exceed market value.
- Condominium unit owners form: This is insurance specifically designed for people living in condominiums.
- Dwelling fire form: This pays for repairing fire damage, but it does not pay for liability, personal property or medical expenses.
- Guaranteed replacement cost coverage: This extends your home insurance coverage by up to 20 percent.
- Inflation guard: This increases your insurance coverage limit over time.
- Personal umbrella liability insurance: This is additional liability protection that exceeds that offered by your standard home insurance policy.
4. Find a quality provider
Now that you know what level of coverage you need, you can start comparing companies and policies. Start by using the NAIC website to weed out companies that have received a lot of complaints. The NAIC will tell you whether an insurance company has received complaints about things like:
- Claim handling delays
- Claim denials
- Unsatisfactory settlement offers
- Canceling policies
- Poor customer service
You can also contact your state’s Insurance Commission to learn more about the insurance companies that serve your area and to find a listing of all licensed insurance agents and brokers. You can find contact information for your state on this NAIC map.
5. Know the right price
Insurance companies look at several factors when determining how much to charge for home policies. Standard questions include:
- How old are your roof and plumbing?
- What is the value of your home?
- What would it cost to rebuild your home?
- How old is your home?
- Does the home have a swimming pool?
- Does the home have a security system?
The insurance company will also look at your address to determine things like:
- Whether you live in a high-crime area
- How close the nearest fire station is to your home
- Whether you live in an area prone to wildfires, flooding, storms, or earthquakes
All of this impacts the price of your policy.
Once you have several quotes, you should know the fair value of insuring your home. You might have a few outliers (companies that charge extremely high or low prices), but most of them will cluster in a price range.
Beware of companies that offer extremely low prices. They’re attractive to buyers, but they usually have low prices for a reason. Remember that customer service matters too. If a company doesn’t give you prompt responses now, they won’t after you’ve already paid for a policy. Always double-check the NAIC database before you purchase insurance from a company that seems exceptionally cheap.
Remember the basics: Finding the right plan
To find the right insurance plan for your needs, follow these steps:
- Consider your life and how it relates to your insurance needs.
- Check a provider’s credentials and ratings to make sure you can trust it. Use an independent agent if you want an unbiased source.
- Decide which add-on coverages you need or want.
- Get several quotes to identify a fair price for insurance based on your needs.
How to lower your risk level and your rates
Homeowner coverage premiums might feel outside of your control, but you can do some things to reduce your risk level in the eyes of insurers. If you feel like prices are too high, consider using the following tips to make policies more affordable. Each one can have an impact on how much you pay every year.
Raise your deductible
Your deductible is the amount of money you have to spend out-of-pocket before the insurance company starts picking up the tab. Raising the deductible makes you more responsible and reduces the insurance company’s risk. That usually means you pay a lower rate.
You do have to accept additional risk when you raise your deductible. Only raise your deductible if you can afford it. If you don’t have enough money to pay for $1,000 of repairs, you shouldn’t have a $1,000 deductible.
Improve your credit score
Insurance companies assume that people with good credit scores are more responsible than those with poor scores. Maintaining a good credit score makes you look less risky to insurance companies, so they’re more likely to give you lower prices. According to myFICO, you can keep your credit score healthy by:
- Paying your bills on time
- Reducing the amount of money that you owe creditors
- Keeping credit card balances low
- Checking your credit score annually to find mistakes
Install extra security
You could qualify for discounts by installing deadbolt locks, smoke detectors and a security system in your home. Those willing to spend money on an indoor sprinkler system that puts out fires and contacts the police automatically can save as much as 20 percent.
Get serious about home improvement projects
You can make your home safer and more appealing with some simple improvements. Putting a fence around a pool, for instance, could lower your insurance premium. Other noteworthy improvements include:
- Updating your electrical and heating systems
- Replacing old water pipes
- Installing a new roof
- Replacing damaged patios and decks
- Repairing wood, tile and linoleum floors
Bundle your insurance
Many insurance companies offer discounted prices to customers who purchase multiple policies. Buying your car and home insurance from the same company, for instance, could give you a 5 to 15 percent discount.
Bundling discounts vary from company to company, so explore your options by asking for quotes that include multiple policies.
Ask about discounts
You could qualify for insurance discounts for any number of reasons. Members of the military often get discounted rates. Geico, for instance, gives a discount of up to 15 percent to military personnel. You might also get a discount for belonging to an alumni, professional or travel association because some associations have deals with insurance companies that lower costs for their members. Other memberships show insurance companies that you are the kind of client they want.
Ask companies to give you information about discounts so you can explore all of your options. You don’t want to miss any way to lower your insurance costs. Even if you only save a small amount each year, those discounts add up to big savings.
Don’t switch providers too often
Insurance companies want to keep their customers, so they often reward loyalty with discounted rates. Switching erratically from company to company can make you look risky. Insurance companies often share information with each other, so they know that you jump from policy to policy.
Never stop shopping
Staying with the same home insurance company for many years could lead to cheaper rates. Still, this doesn’t mean you should necessarily stay with the same company for life. If you can get comparable coverage from another provider at a better rate, go for it. By comparing insurance companies every few years, you can make sure that you never pay more for the coverage that you need. Just don’t make a habit of switching providers every year.
You don’t have to be an insurance expert to get a good deal on a home policy. Just remember the basics:
- Your homeowner’s policy has at least six areas of coverage that you can adjust to match your unique needs
- Floods and earthquakes are rarely covered, so you might need an additional policy if you live in an area prone to these and other disasters
- The price of your insurance policy depends on many factors, including where you live and how much coverage you need
- You can control the price of your policy by making certain decisions about where you live, how you protect your home, and how much risk you are willing to accept
- Always ask about discounts
- Bundling your home policy with other types of insurance often gives you cheaper prices
- Your policy needs will likely change throughout your life, so review your protection regularly
- Always research insurance companies before buying their policies. Fraud does exist in the insurance world. You don’t want to fall victim to unscrupulous companies
- Some licensed insurance companies offer better services than others. Use the NAIC database to make sure you choose a company with few complaints
And to help you as you shop, here’s a quick glossary of terms:
- Additional living expense: The extra costs you incur when you can’t live in your home because of a covered cause and from which your policy protects you
- Covered cause: The specific things your policy protects you against
- Deductible: The amount you pay out-of-pocket before your coverage kicks in
- Liability: Your financial responsibility if someone gets hurt on your property or your cause property damage
- Policy limit: The amount of coverage your policy includes, after which you’re responsible for all costs
- Premiums: The amount you pay for your insurance policy
As long as you keep these basic points in mind, you should be able to navigate the insurance world without too many problems. Whenever you feel overwhelmed, take a step back, review the above information, and approach your options confidently.
Buying home insurance can feel stressful, but you have more control over the situation than you realize. Informed, savvy buyers can make better decisions than those who don’t know how to compare options — or even get the information that they need to compare policies. With this home insurance guide, you’re prepared to make a decision that will protect your home and family without spending more money than necessary.