How to Buy Home Insurance

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Chances are your home is your biggest investment. Homeowners insurance is designed to protect that investment, whether your home is damaged by a storm, or someone slips and falls on your property. Rates and coverage vary from one insurer to the next. The right policy for you will depend on where you live, your property risk and your budget. Let this home insurance checklist be your guide.

1. Understand What's Covered

Most standard policies include the following types of coverage:

Liability Protection Dwelling Coverage Personal Property Coverage Additional Living Expenses Coverage
What's covered? If someone is injured on your property, or a family member injures someone else or damages their property outside of the home Repairing or rebuilding the structure of your home Personal belongings that are stolen, damaged or destroyed by a covered event Having to live somewhere else while your home is being repaired or rebuilt

Homeowners insurance will kick in if you experience a covered event. For standard homeowners insurance policies, that typically includes:

  • Smoke
  • Windstorms (including hurricanes and tornadoes)
  • Hail
  • Lightning
  • Theft
  • Falling objects
  • Certain types of water damage
  • Damage to structures that aren't attached to the house, like a garage or tool shed

Most standard policies do not cover damage caused by an earthquake or flood. That means you'll need to purchase additional policies for these.

2. Estimate Your Coverage Requirements

Most mortgage lenders require homeowners insurance. Even if your home is paid off, it's probably a good idea. Here are some things to consider when figuring out how much home insurance you need:

  • The cost of rebuilding your home: This isn't the same as your home's value because it doesn't include the land. Local real estate agents can probably tell you the average building cost per square foot in your area. Multiply that number by your home's square footage to estimate your rebuilding costs.
  • The cost of replacing your belongings: Take a home inventory and assign a rough cash value to your belongings. That includes antiques, artwork, electronics and anything else of value that's on your property.
  • The amount of additional living expenses coverage you might need: That can include rent at a temporary home, hotel costs, meals, moving expenses, commuting costs and more.

3. Consider Add-On Coverage

When taking stock of your home insurance needs, you may find that a standard policy isn't enough. Adding extra coverage can help fill in those gaps. Here's what that might look like:

Dwelling Extras

Mortgage lenders usually require enough homeowners insurance to satisfy the home loan. In some cases, that may not be enough to cover your rebuilding costs. This is determined by your square footage, the type of materials that would be used and the cost of labor. Extended replacement coverage can increase your dwelling coverage by an extra 20%. An inflation add-on will bump up your dwelling coverage every year to help you keep up with rising consumer prices.

Liability Extras

According to the Insurance Information Institute, the rule of thumb is to purchase $300,000 to $500,000 of liability coverage. Adding an umbrella liability policy might also make sense. This will kick in if you've exhausted your underlying policy's liability insurance. It usually provides higher coverage amounts and more robust coverage.

Personal Property Extras

Electronics, artwork and jewelry may only be covered up to a certain dollar amount, so you might consider extending that number with your insurer. Replacement cost coverage could also make sense. Let's say your clothes are destroyed by a covered event. Personal property coverage within a standard home insurance policy will pay the current cash value of those items. That may or may not be enough to replace them. But replacement cost coverage will cover the cost of purchasing equivalent new clothes.

Additional Coverage for Certain Events

Floods, earthquakes, mudslides and sinkholes aren't covered by standard homeowners insurance policies. If you live in an area that's prone to these events, you can look into buying specialty insurance policies.

4. Compare Home Insurers

The average homeowners insurance premium in 2020 was $1,311, according to the Insurance Information Institute. Every insurance company and policy are different, so it's wise to shop around for the best deal. Gather the following information so you can begin getting quotes:

  • The year your home was built
  • Your home's square footage
  • The age of your roof and the material it's made of
  • Any detached structures you have, like a gazebo or garage
  • Information regarding any home improvements you've made

Be sure to collect quotes from multiple insurance companies. You can do this for free through an insurance agent. You can also use an online search tool. Gabi, a part of Experian, allows you to compare multiple policies at the same time. Once you have your quotes, you might be wondering what to look for in homeowners insurance. Zero in on premiums, deductibles and coverage amounts to decide which insurance carrier is right for you.

5. Find Ways to Save

There are lots of ways to save money on homeowners insurance, even if you're already locked into a policy. Here are some simple tips for reducing your premium:

  • Bundle your home and auto coverage. You could save up to 25% with a multi-policy discount.
  • Increase your deductible. As with most insurance policies, the higher your deductible, the lower the premium (and vice versa). The deductible is the amount you'll pay toward a covered claim before the insurance company pays its share.
  • Make your home safer. Installing a security system, pool gate or other safety measures could reduce your likelihood of filing a claim—and bring down your premium.
  • Only file claims when necessary. When determining your rate, home insurers will look at how many claims have been filed on your home over the past seven years. Having multiple claims could increase your perceived risk (and your premium).
  • Maintain strong credit. Depending on your state, your credit-based insurance score may be used to determine your risk of filing a claim. The factors that go into these scores are similar to general credit scores, so taking time to improve your credit can also help reduce insurance costs.

The Bottom Line

This home insurance checklist covers the most important steps for finding the right policy for your budget. Decide on the level of coverage you need before comparing insurers and looking for discounts. And remember that you can always shop around for a better rate.

Don't forget that your credit health may impact your insurance rates. Experian offers all kinds of free credit resources, including the ability to check your credit score and credit report at any time.

Learn More About Homeowners Insurance