How to buy homeowners insurance

A complete guide to buying homeowners insurance.

Pat Howard 1600

Pat Howard

Published April 16, 2020

KEY TAKEAWAYS

  • When shopping for homeowners insurance, be sure to compare policies from multiple insurance companies to ensure you’re getting the best coverage at the lowest rates

  • The best way to compare policies is to shop through an independent broker like Policygenius

Whether you’re shopping for homeowners insurance for a newly purchased home or you’re re-shopping your current policy for lower rates, you’ll want to compare policies from several of the industry’s top companies to ensure you’re not overpaying for coverage or under protecting your home.

To better prepare yourself for the shopping experience, be sure to do the following:

  • Familiarize yourself with the basics of homeowners insurance
  • Gather information about the home’s rebuild cost, style of build, and other characteristics like the age of the roof and the type of heating system
  • Apply through an independent marketplace like Policygenius, compare coverage and rates from multiple companies, and select a policy
  • Look into any available policy credits and discounts
  • Choose a billing plan and sign

In this guide:

Step 1: Understand your homeowners insurance needs

Before you begin shopping for your homeowners insurance policy, you should have a general idea of how much coverage you need to ensure your home and personal possessions are fully covered. You’ll also want enough liability coverage to withstand a potentially egregious lawsuit.

The following components are in every standard homeowners insurance policy (commonly referred to as an HO-3 policy) and having an idea of how much coverage you need for each of these will make you a more prepared shopper.

Your home’s replacement cost and value of your personal possessions

Your dwelling coverage limit should be equal to your home’s replacement cost, or how much it would cost you to rebuild your home in the event it was destroyed. Insurance companies generally estimate the home’s replacement cost for you during the quoting process — this number is calculated based on details of the home and local rebuild costs. For a more accurate estimate, look into getting a proper replacement cost appraisal of your home.

Coverage for your personal property is typically anywhere from 50–75% of your dwelling coverage, but you can decide how you’d like to be reimbursed for claims (actual cash value or replacement cost).

Lastly, if you live in an area that experiences frequent natural disasters, consider adding more loss of use coverage to your policy to cover relocation expenses if you’re displaced from your home.

Here’s how you determine coverage for each of these components:

  • Dwelling coverage - If you recently bought the home and don't have prior policies to reference its rebuild price, ask around to different contractors, builders, installers and roofing companies to get replacement cost estimates for your home’s exterior, roof, floor, cabinetry, and built-in appliances. If you’re not into the do-it-yourself approach, you could also hire an appraiser that specializes in replacement cost estimates.

  • Personal property coverage - Your personal property coverage limit is typically set as a percentage of your dwelling coverage limit, but there are certain policy add-ons that can enhance your claim payouts and reimbursements for expensive valuables with strict coverage limitations in a standard policy. Consider adding replacement cost contents coverage so that you’re reimbursed for the full replacement value of your personal belongings rather than the depreciated value. Most standard policies will also limit how much it will payout for certain types of valuables like jewelry, art, and electronics. If you own expensive items, consider itemizing them under a scheduled personal property endorsement.

  • Loss of use coverage - Loss of use coverage is typically 20% of your dwelling coverage limit, but it may be possible to increase your coverage limits. If you live in an area that experiences frequent bad weather or natural disasters that could displace you from your home, consider additional loss of use coverage.

Your liability and medical payments coverage

Deciding on your liability coverage is a little less time-consuming, you just opt for the limit suggested to you by your insurer. But if you live alone and don't have much in the way of assets, you may be okay with a lower liability coverage limit.

Medical payments coverage should be enough to cover guests’ hospital bills if they’re injured in your home. Medical payments coverage is generally anywhere from $1,000 to $5,000.

Additional coverages

If you live in an area that experiences frequent flooding or earthquakes, consider adding flood or earthquake coverage or purchasing a standalone insurance policy. Other popular coverage endorsements to consider are water backup coverage, equipment breakdown coverage, and service line coverage to protect against perils and occurrences that aren’t covered by a standard policy.

Step 2: Figure out how you want to shop for homeowners insurance

After you’ve studied up on homeowners insurance and have a general idea of your coverage needs, you’ll determine whether you want to shop on your own from company to company or shop for multiple policies at once through a broker or independent agent.

A good thing to keep in mind when evaluating insurers is how the company handles the claim process. Some major insurance companies are far better at handling the claims process than others, and you should zero in on this when you’re comparing policies, as the single best indicator of home insurance customer satisfaction is the company’s damage estimates. Stay away from insurers who have a reputation for low-balling customers and producing small settlements when you file a claim.

Also try to not limit yourself; the best way to shop for insurance is to cast a wide net so you’re not missing out on any deals or discounts. Having multiple policies to choose from gives you negotiating leverage if an insurer you’re close to signing with refuses to budge on say, allowing your dog to be covered on the liability portion of your policy; they’re more likely to provide coverage if you can point to a handful of other policies that have no issues with covering your very good pup.

Shopping through an independent agent

The best way to shop for any type of insurance — be it homeowners or life insurance — is to go through an independent agent or broker so that you’re comparing policies across multiple companies. The advantage of going through a broker is that they’re licensed professionals who understand what to look for and what to avoid in a home insurance company and policy. You’re still responsible as the homeowner and policyholder to provide necessary paperwork and information, but the extent of that isn’t nearly as cumbersome if the broker is ironing out all the fine details for you.

If you have an existing policy that you need to cancel or need your new policy added to your mortgage, look no further than Policygenius. Our licensed agents will provide you with the expertise, unbiased coverage recommendations and help get you signed up for a policy that's effective and affordable for you and your home.

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Step 3: Information you’ll need when you shop

The more details you have about the home, like the interior specs, the more accurate your quote will be. If you’re simply swapping out policies, most of this information will be available on your old policy.

Here’s a rundown of the information you may need to provide to your agent or broker in order for them to produce accurate quote estimates when you apply.

Home information

  • Address of your home - The address of the property being insured.

  • Insurance appraisal - To determine the full rebuild value of the home if it's damaged or destroyed. This can be done by referencing a recent home insurance policy, hiring an appraiser, or hiring roofing companies, contractors, and builders to assess value to individual parts of your home.

  • Prior insurance inspection reports - Inspection notes from previous insurers can be helpful in determining a multitude of coverage considerations; if they noted that your plumbing is old and requires water backup coverage, your next insurer may take note of that and quote you on the additional coverage.

  • Prior insurance - If you’re buying insurance for the same home you’ve lived in under previous policies, simply provide the broker or agent with your prior insurance policy so they can fetch information like: homes square footage, heating type, age of your roof, plumbing specs, electrical specs and distance from fire departments.

  • Lender requirements - Let your broker know if your mortgage lender requires any additional levels of coverage like flood insurance.

You’ll also need to list who will be living in the insured home, whether you’ll be renting the home out or not and if you consider the home a primary or secondary residence. For example, if you’re renting it out or use the residence as a home office, your insurance broker may offer suggestions to maximize your home insurance tax deductions that are available for rental or home office properties.

Personal information

  • Date of birth - This can help an agent or broker access your insurance history.

  • Occupation - Depending on your occupation, you may be eligible for certain discounts or group rates.

  • Social Security number - To access your credit history which better informs the rates you’ll be paying.

  • Property history - If you haven’t lived at the home you’re seeking coverage for at least two years, you’ll be asked to provide addresses for previous residences.

  • Liability questions - Carriers will want to know if you have any pets, trampolines, tree forts, or pools (and whether the pool is above-ground or in-ground, specifically).

Step 4: Compare quotes and select a policy

After you’ve given your agent all the required information about your home, it’s time to get quotes and select a home insurance policy. The best practice here is to make sure you and your agent analyze a variety of options so you’re able to do a proper comparison.

Don’t just look at the price

Cheap is good, there’s no denying that, but when selecting a homeowners insurance policy, cheap doesn’t tell the entire story. In fact, what you may find is the amount you’re quoted isn’t anywhere close to the amount you end up paying.

Say, for instance, the premium for the cheapest policy is a solid $15 less per month than the next affordable policy. It may seem like a great deal, but if you do a little more digging, you may find that the “cheap” policy is actually full of exclusions and low coverage limits that require additional coverage. Once you’ve accounted for all that to meet your coverage needs, your premiums may end up being far higher than what you were led to believe.

Apart from the policy itself, you’ll also want to look into the insurance company’s background. Be sure they’re a financially stable company, read customer reviews and check their ratings with consumer insights companies like A.M. Best and J.D. Power, and Consumer Reports, to name a few.

Step 5: Finalize your policy details

You’ve compared quotes, gotten all your most pressing questions answered and selected a policy, now it’s time to choose a billing plan and policy deductible.

If you’re buying a home and need homeowners insurance to close on the property, there are a few details you need to finalize first:

  • Premiums - It's common practice for lenders to require that premiums for the year be paid in full ahead of closing on your mortgage. Be sure to clarify with your agent if this is the case — the agent will be in contact with your lender about coverage and billing requirements for how your insurance will be paid moving forward.

  • Deductible - You’ll also need to set your policy’s deductible, which is the amount you pay before your claim for damages is covered. From a cost standpoint, what you’re looking for is a low monthly or annual premium. So if you don’t plan on filing many claims, choose the higher deductible.

  • Effective date - Lastly, you set the policy’s effective date, which is when your coverage begins.

Once your billing and policy dates are set and your lender approves the policy, you’re good to sign on the dotted line.

Step 6: Welcome the insurance inspector

Your home insurance carrier will typically perform an inspection of the property to make sure everything is in order and reported as quoted. If anything is off or you forgot to mention something in your application, your adjuster will take note of the errors and omissions and you’ll see it reflected — for better or worse — in your next bill. For example, maybe your roof is about 10 years older than you stated on your application; or on the flip side, maybe your home has certain safety and security features like burglar alarms and stormproof windows that you forgot to mention that could get you a policy discount.

You should use the inspector’s visit as an opportunity to pick their brain about various discount opportunities and get those rates lowered. Remember, the inspector has looked at a number of houses just like yours, and may have some good solutions for lowering your homeowners insurance rates.