Step-by-Step Checklist for Buying Home Insurance

Know What Homeowners Insurance Covers—and Doesn't

It's important to understand what homeowners insurance covers—and what it doesn't. Standard policies generally include the following types of coverage.

• Liability protection/no-fault medical coverage pays for legal costs and medical care if a visitor is hurt on your property; it also covers damages your family members cause to another person or their property.
• Dwelling coverage pays repair or rebuilding costs if your home is damaged or destroyed by a covered peril.
  • Covered perils usually include fire or smoke, wind (including hurricanes and tornadoes), hail or lightning, vandalism, theft and certain types of water damage.
  • Additional structures, such as garages and fences, are usually covered as well.
• Personal property coverage pays to replace contents of your house that are stolen or damaged by a covered incident. It may also cover personal possessions outside the home, such as in your car or storage space.
• Loss of use/additional living expenses (ALE) covers the cost of living elsewhere while your home is being rebuilt or repaired, including rent, hotel costs and meals.

Homeowners insurance generally doesn't cover damage from floods, earthquakes, sinkholes or water damage from backed-up sewers, septic tanks, sump pumps or drains.

Decide How Much Homeowners Insurance You Need

The amount of coverage you need to carry is based on the cost of replacing or repairing the structure. This is different from your home's price or current value, which includes your land as well as the structure.

• Estimate rebuilding costs based on your home's square footage, local costs for materials and labor, and your home's materials. Local contractors, real estate agents or insurance agents can help you estimate the cost of rebuilding
• Conduct a home inventory to estimate the value of your personal property.
  • Go through your house and estimate what it would cost to replace everything in each room. Record a video including images and descriptions of items, such as brand names and year purchased.
  • Include belongings kept in outbuildings on your property or in an off-site storage facility (some homeowners' insurance policies cover off-site property too).
• Look at your budget to see how much you can afford to spend on premiums. Try to find a balance between the coverage you want and the amount you can afford.

Homeowners Insurance Extras to Consider

You may need or want extra insurance to provide coverage beyond a standard policy's limits.

Liability extras:

• If you own property or assets worth more than the limits of your homeowners insurance, umbrella insurance can provide extra coverage in increments of $1 million.
• Homes with dogs, swimming pools, jacuzzis, trampolines or other features likely to cause accidents may need additional liability insurance.

Personal property extra:

• Standard policies pay the amount an item is currently worth; this may not be enough to replace the item with a current equivalent.
• Consider replacement cost coverage, which pays to replace appliances, electronics and other personal property with equivalent models.
• Standard home insurance typically limits coverage for items such as jewelry, fine art, electronics and collectibles.
• If you own valuables that exceed these limits, consider buying a floater or endorsement for the items' full value.

Dwelling extras:

• If you have an older home, consider ordinance or law coverage, which pays to rebuild your home to current building codes.
• After natural disasters, rebuilding costs sometimes skyrocket due to labor and materials shortages.
  • Extended replacement coverage adds 20% to 25% above your dwelling coverage limits to cover these costs.
  • Guaranteed replacement coverage covers the cost of rebuilding no matter how much it exceeds your dwelling coverage limits.
• Inflation coverage automatically increases your coverage annually to account for inflation.
• Some policies limit the dollar amount of ALE coverage or how long it can last. Consider extended ALE coverage if your region is prone to disasters.

Specialized insurance for disasters standard home insurance doesn't cover:

• Flood insurance: Use FEMA's flood map to see if you're in a flood zone and what your risk level is. If you're at risk, your mortgage lender may require flood insurance; even if they don't, it can be a good idea.
• Earthquake insurance: If you're in earthquake country, you'll want to carry earthquake insurance. You can get this from private insurance companies or, in California, through the California Earthquake Authority.
• Sinkhole insurance: If sinkholes are common in your area, see if you can purchase this coverage as an endorsement or additional policy.
• Sewer, sump pump, septic tank or drain backup insurance: Any home can be at risk for water damage from backups. Coverage is available as an endorsement or additional policy and is generally very affordable.

Choose a Homeowners Insurance Company

You can look for homeowners insurance online at insurance company websites or use an insurance comparison site to evaluate different providers.

• Start with the insurance companies you already do business with and aim to get quotes from three to five companies at least.
• Find companies by reading ratings and reviews online and asking friends and family for recommendations.
• If you want more guidance than a website can provide, talk to an insurance agent.
  • Captive insurance agents sell insurance from one provider.
  • Independent insurance agents sell policies from a variety of carriers and can help you shop around for the best insurance.
• Make sure to compare the same type and amount of coverage from one company to another.
• Check ratings of insurers' financial stability from AM Best, Moody's and Standard & Poor's.
• Look for consumer complaints about insurers at the National Association of Insurance Commissioners website.
• Read consumer reviews of companies to see what type of customer service they offer. You want a company that will be helpful and responsive should you have a claim, so don't buy on price alone.

Look for Ways to Save Money on Homeowners Insurance

Factors in the cost of homeowners insurance include your home's location, condition and materials, and past claims you and previous owners have filed for the home. To lower your premiums:

• Maintain good credit.
  • If you have poor credit, insurance providers in many states may charge you more.
  • Before applying for homeowners insurance, check your credit report and credit score, and take steps to improve your score if necessary.
• Increase your deductible (the amount you pay before the insurance company pays out for your claim).
  • Homeowners insurance deductibles can be a dollar amount (typically starting at $500) or a percentage of the claim amount.
  • Separate insurance for flood, earthquake and other disasters typically has its own deductibles, so make sure you can afford a higher deductible before making a change. In earthquake-prone states, minimum deductibles are often 10% or more.
• Bundle insurance policies. Buying more than one policy from the same company generally earns a discount.
• Investigate discounts. Different insurers may offer discounts for:
  • Buying insurance online, setting up autopay or paying your annual premium in full.
  • Installing safety or security devices such as storm windows, burglar alarms or smoke detectors.
  • Updating or replacing old roofs or heating, plumbing or electrical systems that could pose risks.