How to Compare Home Insurance Policies

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Homeowners insurance isn't cheap―in 2021, it cost consumers over $2,000 on average annually―but it's essential to protecting your biggest asset. Doing a little legwork before you buy insurance can help you find the coverage you need for a reasonable price. To compare home insurance policies, determine your coverage needs and then get multiple quotes from different companies for the same types and amounts of coverage.

1. Understand Standard and Add-on Coverage

Homeowners insurance policies generally include four standard kinds of coverage.

  • Structure or dwelling coverage pays to repair or replace your home if it's damaged or destroyed by a covered event, such as a fire.
  • Personal property coverage pays to replace personal possessions that are damaged, destroyed or stolen in a covered incident.
  • Liability coverage pays legal and medical costs if a visitor is injured on your property.
  • Alternative living expenses (ALE) coverage helps cover the cost for you to live elsewhere during home repairs or rebuilding following an insurance claim.

Depending on your needs, you may also want add-on coverage, including:

Extra Structure Coverage

Dwelling coverage is often based on the amount of your mortgage, but that might not be enough to rebuild your home. The following extra coverage can help:

  • Inflation coverage raises your coverage each year based on inflation.
  • Extended replacement coverage increases your coverage by 20% or more to pay rising costs.
  • Guaranteed replacement coverage pays for rebuilding the house exactly as it was, even if doing so costs more than your coverage limit.
  • Ordinance coverage pays to rebuild the home in keeping with the latest building codes, which have probably changed since your house was built.

Extra Liability Coverage

In case of a lawsuit, you'll want liability protection for all your assets, including your bank accounts, home and retirement accounts. You can increase your liability coverage to equal your net worth, or purchase umbrella insurance, which pays out when legal and medical costs exceed your home or auto insurance limits.

Extra Personal Property Insurance

Standard personal property insurance is between 50% and 70% of the amount of your dwelling coverage. You can do an inventory of your home, estimating the cost of each item, to assess whether that's enough. However, standard personal property coverage pays out the current value of an item, not the amount it would cost to replace it. If you'd like to replace your 10-year-old TV with a new one, you'll want replacement value coverage instead. Coverage for certain belongings, such as jewelry and computers, is generally limited to a few thousand dollars; if yours are worth more, you'll need a rider to protect them.

Extra ALE Insurance

Home insurance policies typically cap ALE coverage based on either a time period or a percentage of your structure coverage. That might not be enough to cover you if labor or materials are in short supply and construction or repairs take more time than anticipated. Purchasing extra ALE coverage can help protect against this risk.

Natural Disaster Insurance

Standard home insurance does not cover floods, earthquakes or sinkholes. If you live in a region where these disasters occur, you'll have to purchase additional coverage. Many insurance companies sell stand-alone or add-on flood insurance and sinkhole insurance. Earthquake insurance policies are available from insurance carriers or, in California, from the California Earthquake Authority.

Water Damage Insurance

Damage to your home from sewer, sump pump, septic tank or drain backups generally isn't covered by standard home insurance. However, it's usually available as a stand-alone policy or rider very affordably.

A local insurance agent can help determine the risks to which your home is exposed, how much it might cost to rebuild it and how much coverage you need. Once you have that information, it's time to shop around.

2. Gather the Information You'll Need for a Quote

Before you ask for insurance quotes, be prepared to provide the following information:

  • The type and amount of insurance you need
  • Your name and birth date
  • Your address
  • When you want coverage to begin
  • The number of people living in the house
  • The year the home was built
  • The home's square footage
  • Any outbuildings such as garages or gazebos
  • The roof's age and what it's made of
  • Any safety devices you've installed, such as a security system
  • Any home improvements, such as upgraded plumbing or electrical systems

You may also be asked:

  • Whether you've ever filed a home insurance claim
  • Whether there's a dog on the premises
  • Whether you run a business from home

3. Get Quotes From Different Companies

Request quotes for the same type and amount of coverage from each of the companies to be sure you're getting an apples-to-apples comparison of home insurance policies. You can get quotes from one insurer at a time via insurance carriers' websites or by calling an insurance agent. For a more efficient option, contact insurance brokers (who sell insurance from a variety of carriers) or use an insurance comparison site such as Gabi, a part of Experian, to compare policies from multiple companies at once.

4. Compare Deductibles and Coverage Amounts

Standard coverage limits may vary slightly from one insurer to another. Find out exactly what each carrier's limits are and how much it would cost to get the amount of coverage you want. Also compare standard deductibles and options for adjusting them. A standard home insurance deductible may be a dollar amount (usually starting at $500) or a percentage of your claim payout. Raising your deductible generally lowers your premiums; just be sure you can afford to pay the larger deductible if necessary. Add-on insurance, such as flood or earthquake coverage, usually has its own deductible; if you're purchasing these policies, take their deductibles into account as well.

5. Check for Available Discounts

Find out what discounts various insurance companies offer. You might get discounts on home insurance for:

  • Having security or safety systems such as smoke detectors or burglar alarms
  • Replacing an old roof or outdated electrical, furnace or plumbing systems to reduce risk
  • Belonging to an association, alumni group or other organization
  • Being retired
  • Purchasing insurance online
  • Auto-paying premiums or paying annually instead of monthly
  • "Bundling," or buying two or more types of insurance (such as home and auto) from one carrier

6. Factor in Consumer Satisfaction and Trustworthiness

Price isn't the only consideration when buying home insurance. Your insurer should also be helpful and responsive when you have a claim. To evaluate a company's customer service, read online reviews from customers and check with the National Association of Insurance Commissioners for customer complaints. Consumer Reports' reviews of homeowners insurance companies can be accessed for a small fee.

Finally, make sure the home insurance carrier is financially sound so they can pay out on any claims. A.M. Best, Moody's and S&P rate insurance companies' financial stability. (You'll need an account to access some of these ratings, but registration is free.) Each has a slightly different rating system; check all of them to get a feel for the carrier's reliability.

Safe at Home

By shopping around for home insurance, you can find the perfect combination of protection and affordability. Maintaining good credit can help lower homeowners insurance costs. Insurance carriers in many states consider your credit-based insurance score when determining your premiums. These scores differ from your regular credit score but are based on much of the same data. Paying bills on time, keeping your account balances to a minimum and other good financial habits can help improve both types of credit scores, potentially saving money on home insurance.