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Basic Guide to Buying Home Insurance

Published May 18, 2022
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Your Basic Guide to Buying Home Insurance

This article has been reviewed by licensed insurance industry expert Moshe Fishman.

Buying a home will represent the biggest investment of your life. So, unless you’re able to predict the future, gambling on its protection is risky. That’s the reason home insurance exists and why it’s so vital. With the right coverages and amounts, based on your personal situation, you can have true peace of mind when a disaster suddenly strikes without warning.

What this article covers: 

  • Definition of home insurance.
  • What’s important to know about homeowners insurance.
  • State and lender home insurance requirements.
  • What you need to consider to adequately insure your home.
  • How to shop for a homeowners policy.
  • Ways to lower your homeowners insurance costs.

What is home insurance?

Home insurance, also referred to as homeowners insurance, is a policy that consists of property coverages and amounts that are packaged together to protect your home’s structure(s) and belongings against unforeseen damage and losses. This includes loss or damage to the interior and exterior of your home as well as your personal assets and belongings. In addition, liability coverage protects you, your family, and your home against claims resulting from accidents that cause a guest’s injury or personal property damage while on your property. 

What you need to know about homeowners insurance

If you’re a new homeowner you may be asking yourself what home insurance consists of, what it covers, and why you need it. Fair questions all. And if you look closer at the responsibility of owning a home, you quickly realize the magnitude of its ability to suck up your hard earned money in mortgage payments, maintenance, and upgrades.

With this large investment comes the worry that if something unexpected happens, it could bankrupt you. So bottom line, without insurance, sudden damage or loss could ruin your finances.

  • Mortgage lender requirements.

When you buy a home and take out a mortgage, your home loan lender will require that you carry homeowners insurance on your property. You may be required to show a proof of insurance prior to finalizing your home loan that’s based on the value of your home or loan amount. Depending on your initial amount down on the loan, you may also be required to purchase mortgage insurance to protect the lender should you default on your payments. 

This type of insurance is also called private mortgage insurance (PMI) and becomes part of your expenses. It’s important to note that PMI is very different from homeowners insurance and does not protect you or your assets. If you are taking out an FHA loan, the Federal Home Administration will also require mortgage insurance. 

  • Your state’s requirements.

Unlike car insurance, homeowners insurance is not required by law but will be required by your lender if you carry a mortgage on your home. But the state where your house is located may influence the costs you pay for a home insurance policy and needed coverages. Extreme weather, natural disasters, and other risk factors that are unique to your state can affect what you pay in premiums. 

Typically, these types of coverages are not included in a standard home insurance policy and may be expensive to add on if the risk is high for certain natural disaster events and hazards in your state. For example, California is prone to earthquakes and such insurance is an expensive add on with a high deductible. Insurance rates also vary widely from state to state. In addition, not all insurance companies operate in all states. 

US States Most Prone To Natural Disasters 

operate in all states. 

US States Most Prone To Natural Disasters 
RankUS StateMajor disasters since 1953
1Texas86
2California78
3Oklahoma73
4New York67
5Florida65
6Louisiana60
7Alabama57
8Kentucky56
9Arkansas54
10Missouri53

Source: World Atlas (Oct 2020)

  • Make sure you’re properly insured.

Many people go with the minimum amount of coverage. Others pay too much for extra coverage they don’t need. So, it’s smart to figure out how much insurance is the right amount. For example, don’t carry 50K worth of personal property coverage when it would only cost 30K to replace all your belongings.

Taking the time to inventory all of your belongings and estimating how much it would cost to replace everything is a worthwhile time investment. These records will also come in handy in case you ever do need to file a claim.

  • Inquire about any discounts.

Certain discounts on your insurance premiums may be available from insurers so you should ask your carrier whether or not you qualify. For example, increasing your deductible, installing a security system, or bundling your home policy with your car insurance could get you some discounts. 

Know how much home insurance you need 

The coverages and amounts of homeowners insurance you need will depend on a few factors including the geographical area where your home is located, your home’s value, and your mortgage amount. In addition, according to Insurance Information Institute, it’s important to be sure your coverage will pay for rebuilding costs and replace your contents should a disaster hit.

If your home is destroyed and repaired making it uninhabitable during the process of rebuilding/repairing, you’ll want to have insurance to cover reasonable living costs. Liability coverage will protect your financial assets if a claim is brought against you or your family when someone is injured on your property. 

A standard homeowners policy will cover your house structure and any attached structures like a garage. Other covered items would typically include built-in appliances as well as fixtures and personal belongings. Most policies will also include liability insurance to cover your finances should you be liable for someone else’s property damage or injuries while on your property.

You may wish to add additional coverages to protect your personal valuables, medical bills, and any unattached structures like a shed. If you live in earthquake or flood prone areas, you will need to purchase a separate policy to cover damages in the event of these types of disasters. Look into the types of coverages that are available to you to protect your home and contents.

Unfortunately, the National Association of Insurance Commissioners estimates that “between 85% and 95% of homeowners do not have flood insurance.” And if you think you don’t need to worry about earthquakes, you may be surprised to learn that the US Geological Society has determined that 42 states are under risk of damage due to an earthquake.

Here is a list of common coverages for home insurance: 

Dwelling (Coverage A): Pays to repair or rebuild your home's structure (foundation, roof, walls) according to your limits due to certain conditions like fire, smoke, lightning strikes, storms, wind, hail, and vandalism.

Other Structures (Coverage B): Pays for repairs or replacement (up to 10 percent of dwelling coverage) of detached structures on your property, such as a detached garage, fence, or shed, if damaged or destroyed by a covered risk.

Personal Property (Coverage C): Covers your belongings such as furniture, clothing, jewelry (limits apply), household goods, sporting goods, electronics or anything else not permanently attached in the event of a covered loss, such as theft, vandalism, or fire.

Loss of Use (Coverage D): Helps to pay for additional living costs incurred should your house be temporarily uninhabitable while being repaired or rebuilt due to a covered loss.

Personal Liability (Coverage E): Pays for legal and medical expenses if you or a covered family member is found liable for another person’s injury or damaged property.

Medical Payments (Coverage F): Pays for another person’s medical expenses for an accidental injury that occurs on your property whether or not it’s your fault.

Other available home insurance coverages may include: 

Extended Replacement Costs: Pays for unexpected increases in construction and labor costs to rebuild your home (up to a predetermined percentage) not covered by your dwelling coverage.

Flood Insurance: This coverage is separate from your standard insurance policy and is federally backed by the National Flood Insurance Program (NFIP). It covers damages and losses to your home due to a flood-related event within certain communities.

Earthquake Insurance: This type of coverage is also purchased separately and pays for loss or damage due to an earthquake.

How to shop for a homeowners insurance policy 

Shopping for insurance to protect your home shouldn’t be complicated. There are lots of companies and options to choose from and all of them would like the chance to win you over as a customer. Be sure to get at least quotes on the coverages and amounts of insurance you need.

You can go online to shop and get your quotes quickly or work directly with each insurance company or their agent. Independent agents may represent more than one insurance company but are still directly affiliated with each insurer as they are paid commissions for their rendered services. Depending on the insurer you select, you may have the option to pay your premiums in installments.

Average home insurance costs for $250k dwelling coverage.

Average home insurance costs for $250k dwelling coverage.

StateAver. annual premiumAver. monthly premium
Alabama$1,629$140
Alaska$1,045$92
Arizona$1,194$104
Arkansas$2,147$184 
California$1,019$90
Colorado$1,664$143
Connecticut$1,189$104
Delaware$685$62
Florida$1,358$118
Georgia$1,381$120
Hawaii$381$36
Idaho$840$75
Illinois$1,327$115
Indiana$1,155$101
Iowa$1,294$112
Kansas$2,699$260
Kentucky$1,844$158
Louisiana$1,818$156
Maine$961$85
Maryland$1,129$99
Massachusetts$1,312$114
Michigan$1,125$98
Minnesota$1,790$154
Mississippi$1,778$153
Missouri$1,563$135
Montana$1,831$157
Nebraska$2,821$240
Nevada$827$74
New Hampshire$729$65
New Jersey$756$68
New Mexico$2,029$174
New York$992$87
North Carolina$1,300$113
North Dakota$1,846$158
Ohio$1,116$98
Oklahoma$3,524$298
Oregon$717$64
Pennsylvania$735$66
Rhode Island$1,198$104
South Carolina$1,147$100
South Dakota$1,922$165
Tennessee$1,630$140
Texas$1,868$160
Utah$652$59
Vermont$691$62
Virginia$1,018$89
Washington$868$77
Washington, D.C.$907$80
West Virginia$1,129$99
Wisconsin$991$87
Wyoming$810$72

Discounts that may lower your home insurance premiums

Are you paying too much for homeowners insurance? Many new homeowners quickly purchase a policy during the stressful home-buying process, and never think to check if they’re overpaying. Check out this list of possible ways to lower your homeowners insurance costs. Not only will you be paying less, but many of the suggestions on this list will also help you protect your biggest investment: your home. 

  • Install an Alarm System

The popularity of DIY home security and alarm systems such as Ring and SimpliSafe has exploded recently, and it’s easy to see why. These self-installed alarm systems are easy to purchase and install. They provide peace of mind not just to homeowners, but to insurance companies as well. The initial cost of the systems runs from a hundred to a few hundred dollars and monthly monitoring costs usually run the cost of a daily caffe latte. By having a smart-technology system installed, homeowners may receive a small discount on their policies. For even bigger discounts, consider a professionally installed home security system such as ADT, Protection One, Brinks, etc.

  • Guard Against Fire and Carbon Monoxide Leaks

Protecting your home from hazards such as fire and carbon monoxide leaks is one of the smartest things you can do as a homeowner. At a minimum, invest in fire extinguishers, smoke alarms, and carbon monoxide detectors. Learn how to use a fire extinguisher in advance and replace them after ten years. Also, test your smoke detectors and carbon monoxide alarms on a regular basis and make sure the batteries are working properly. These simple measures can result in a potential discount on your homeowners insurance. For even more possible savings, and peace of mind, have a water safety or fire alarm system installed in your home. 

  • Install Deadbolts on Entry Points

Unfortunately, theft is one of the top reasons why people need to file claims with their homeowners insurance company. Installing deadbolts on your doors is an excellent way to deter thefts. Deadbolts are harder for thieves to pick, and they also make it more difficult to kick in the door. Be sure to check if the deadbolt you’re thinking of installing is Grade 1 or Grade 2 as these are the deadbolts that most insurance companies require for a discount. You’ll also need to install the deadbolts on all exterior doors to qualify for a discount. There should be no question that preventing the likelihood of theft, or a home invasion is well worth the effort.

  • Home Maintenance

Proper home maintenance will not only lower your rates, but it’ll also protect your home as an investment. Some examples of basic home maintenance include getting your clothes dryer duct vent cleaned regularly, installing a master water shut-off valve, replacing the rubber washer hoses in your washing machine with stainless steel, and having your chimney cleaned and inspected. Being diligent about home maintenance will pay off not just in the short-term, but also in the long run!

  • Ask About Lesser-Known Discounts

It never hurts to ask what other unknown discounts that might apply to you. Check with your insurance company or agent to see if there are any lesser-known discounts you’re not taking advantage of. Examples of lesser-known discounts may include being a new homeowner, not having any smokers living in your home, choosing paperless billing, or having a certain type of job such as teacher, first responder, engineer, and farmer.

  • Pay Out of Pocket for Minor Claims

Although it may seem counter-intuitive to not use your homeowners insurance when you need to, filing a claim is almost guaranteed to raise your rates. You’ll also lose your discount for not having had any claims. Policy increases due to a prior claim may stay on your policy for a minimum of five years. Consider paying out of pocket for a minor claim, especially if the total cost isn’t much more than your deductible. Also, keep in mind that claims for water damage and dog bites are the biggest red flags to insurance companies and will inevitably result in a premium increase.

  • Bundle Insurance Policies and Pay Full Premiums

Bundling all your insurance policies is an easy way to get discounts on not just your home insurance, but your auto, boat, motorcycle, and life insurance policies as well. Paying for your policies upfront and in their entirety will also result in discounts.

  • Increase Your Deductible

If you’re wondering if there is an easier way to lower your premiums, try increasing the deductible on your policy. Contact your insurance company and have them give you a breakdown of how your premium can decrease based solely on different levels of deductibles. Although having a high deductible will result in more upfront, out-of-pocket expenses should you ever need to use your homeowners insurance, the savings in premiums can be substantial.

  •   Compare Rates with Different Companies

Homeowners insurance rates can vary widely from company to company. Different insurance companies may offer more of a discount based on certain parameters or offer discounts that other companies don’t offer. Carve out a couple of hours in your busy day to compare rates with at least three different carriers. Or, better yet, go online to compare rates with 5 Minute Insure to get comparable quotes in just minutes. You might be surprised by the savings you may receive simply by switching to a new insurance company. 

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