Updated November 4, 2019

How to Buy Homeowners Insurance

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Homeowners insurance protects one of your most valuable possessions. But how much coverage do you really need? Read on for the answer.

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Homeowners insurance protects your home and personal possessions if something bad happens. Mortgage lenders require it, as do many condo and homeowners associations.

But the buying process will be slightly different based on whether you are:

  • Insuring a new home
  • Replacing existing coverage

From choosing the best company to selecting coverages, our guide will answer all your homeowners insurance questions.

In this guide, we'll explain:

Where to Buy Homeowners Insurance?

You've got plenty of options when purchasing homeowners insurance, including:

Online Insurance Marketplace
Here you'll find policies from many insurance companies, agencies, and brokers to review and compare (more on this below).

Independent Insurance Agency
Work with an agent that offers products from various insurance companies. They can also help you compare coverages and answer any questions you may have.

Specific Company
If you already know which company you prefer, contact them directly to purchase a policy. You can either:

  • Contact a call center
  • Visit their website

Contact your car insurance company to see if they offer homeowners insurance. Most companies offer a multipolicy discount if you insure your auto and home. The savings could be as much as 30%.

Field Office of an Insurer
You can meet face-to-face with an agents from a specific company to find the best coverage for your needs. Just make sure you compare companies before settling on one.

Membership Group
Many groups, clubs, and associations offer home insurance to their members. These policies are often more comprehensive (and cheaper) than you can find on your own. You can contact your organization's leadership for more information.

What's the best way to buy homeowners insurance?
The answer depends on your needs. Some people prefer online marketplaces, which allow you to compare quotes and research policies at your leisure. Others take comfort in being able to speak with an agent to have their questions answered.

Regardless of which option you choose, be sure to compare quotes from at least three different companies before deciding.

Shopping for Homeowners Insurance Online

Shopping online allows you to compare policies on your terms. An online insurance marketplace is a great place to start.

Here's how to get started:

  1. Enter some basic personal information and details about your home and coverage needs. If you're replacing expiring coverage, you can use your current coverages as a starting point.

  2. You'll get a list of policies and prices to review. Everything you need to know about the policy and the company is provided.

  3. Make your selection. Once you decide, you can usually apply for the policy online. However, in some cases, you may need to call to complete the application.

Surveys show you can save $300–$1,000 a year by shopping around for homeowners insurance.

How To Compare Coverages
When getting quotes, be sure to request the same coverages, coverage limits, policy deductible, and calculation method from each company. Some companies, such as Lemonade Insurance, have a base rate that increases as you add more coverage for individual items.

And remember: a home insurance quote is just an estimate. Your actual cost will only be determined after you submit an application for homeowners insurance.

Before choosing any homeowners policy, consider these questions:

  • What coverages are excluded?
    For example, some insurers cover hurricanes, while others do not.

  • Is there more than one deductible?
    Some insurance carriers may carry extras like a hurricane windstorm loss deductible.

  • Are there coverage limitations?
    For example, insurers may limit personal property coverage on electronics to $500.

  • Does the policy have inflation protection?
    This means the coverages reflect price index increases.

  • Does one insurer offer more discounts?
    Some insurers offer a wider range of discounts than others. These discounts lower the price of your insurance, so the more you qualify for, the less you pay.

Keep reading for our list of the top homeowner insurance companies on the market.

Best Homeowners Insurance Companies

All home insurance companies provide standard coverages and policies. What sets them apart is quality service, comprehensive coverage, and overall value for the price.

Here are some of the best homeowners insurance providers on the market:

Best Overall: Allstate
Allstate customizes homeowners insurance for all types of homes and adds value through discounts and resources. The company is easy to access through its website, mobile app, agent, or customer service representative.

Best for Condos and Townhouses: MetLife
MetLife offers customized condo insurance policies with replacement cost coverage, worldwide personal belongings coverage, and identity protection services coverage.

Best for Competitive Rates: Chubb
Chubb provides the best price for the coverage provided. Besides insurance protection, its homeowners policies include free valuable services not offered by others. They include a home assessment, an infrared home scan that looks for faulty electrical connections, leaks, etc., and wildfire defense services.

Best Homeowners Insurance for Discounts Winner: Allstate
By numbers alone, Allstate offers the most homeowners insurance discounts, including:

  • 25% for multipolicies
  • 20% for switching from another company
  • 10% for new and renewing customers

Easiest to Obtain: Allstate
Allstate's customer service and claims service are available 24/7 by phone or mobile app. You can make initial contact through its website, by phone, or with an Allstate agent. Customers can manage their policies, access policy forms, or make a payment online whenever they want.

Best for Service: Amica
Amica consistently scores the highest ratings in both overall customer satisfaction and financial strength from insurance rating agencies. This high level of service is consistent when resolving a claim, responding to an inquiry, or when doing business online.

Best for First-Time Buyers: Allstate
Allstate guides new homebuyers through the home insurance quote process as well as completing a homeowners insurance application. The company also offers some of the lowest rates.

When comparing home insurers, check out these key factors:

  • Insurance rating: This reflects the company's financial stability. This may be available on the company's website or you can search an insurance industry rating agency, like AM Best and Standard & Poor's.

  • Ways to contact: Do they have toll-free, 24/7 customer service and claim reporting phone numbers?

  • Customer reviews: Check online review sites or the Better Business Bureau (BBB).

Average Cost of Homeowners Insurance

The average annual cost of homeowners insurance in 2019 is $1,083. But the price can vary greatly based on where you live.

The U.S. states with the lowest homeowners insurance rates per year are:

  • Oregon: $575
  • Idaho: $600
  • Utah: $635
  • Wisconsin: $685
  • Washington: $700

The U.S. states with the highest homeowners insurance rates per year are:

  • Florida: $2,050
  • Texas: $1,950
  • Louisiana: $1,850
  • Oklahoma: $1,775
  • Mississippi: $1,450

Remember, each policy is based on the particulars of the home, so no two will be priced the same.

Some factors that will affect the cost include:

  • The age and type of materials of your home
  • Location in terms of crime, city vs rural, closest fire department, etc.
  • Risk for natural disasters
  • The coverage amounts, limits, and deductibles you select
  • Additional coverages, such as flood insurance
  • Home insurance discounts applied to your policy
  • Your credit score

Buying Homeowners Insurance for the First Time

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While federal law doesn't require you to purchase homeowners insurance, your mortgage lender will. Some lenders insist on a specific amount of coverage—usually enough to totally rebuild your home if disaster strikes.

You might also have to buy separate policies for floods, earthquakes, mudslides, and wildfires. These are not covered under a traditional homeowners policy.

Keep reading to learn more.

If you're a first-time home buyer, you can opt for the mortgage lender to pay your mortgage, home insurance, and property taxes. You'll then make monthly payments to an escrow account so the lender can cover these bills.

Before Closing on Your New Home

Your lender will require homeowners insurance before extending financing. Here's a general timeline to keep you on track:

25 Days Before Your Closing Date
Request quotes from at least 3 companies. This can be done online, by phone, or in person with an agent.

20 Days Before Closing
Finish reviewing your quotes and submit a homeowners insurance application with the selected insurer.

15 Days Before Closing
Receive preapproval and provide this information to your escrow/title company. Be sure to review the policy's terms carefully. You have a 15-day contingency period to cancel it.

Be sure to contact your home insurance company or agent when your mortgage loan is approved.

10 Days Before Closing
A home insurance inspection is scheduled. The insurance inspector will walk through the house to verify information in the application and to look for anything that was missed.

7 Days Before Closing
Inform your home insurer if your lender requires your first year of insurance to be paid in full before the closing. They will contact the lender about the billing method after the first year.

You also need to establish the effective date of your policy. Typically, this date is the same as the closing date.

5 Days Before Closing
Your home insurance company provides a proof of insurance document to you and your escrow/title company along with an insurance binder to you and your lender. This confirmation of coverage is usually sent via fax or email.

At the Closing
Your mortgage lender may set up an escrow account to hold funds from your monthly mortgage payment. These funds are used by the lender to pay your homeowners insurance and property taxes on your behalf until your mortgage is paid off.

Be prepared to pay one year's worth of home insurance coverage at the closing. Most mortgage lenders require this before closing on a home.

Before you can apply for homeowners insurance, you need to know your coverage options and needs. Read on for the full breakdown.

Home Insurance Coverages

Some homeowners policies only cover the dwelling. Others limit coverage to certain losses. If you want a comprehensive policy, look for one that includes these coverages:

This covers the structure of your home and anything attached to it, like a garage, or a built-in, like a heating, ventilation, and air conditioning (HVAC) system.

Dwelling coverage is the most important part of a homeowners policy. It addresses the perils that can cause damage to your home. Perils are risks, natural disasters, or any type of event that can cause damage (including fire and theft).

Other Structures
This coverage applies if you have structures like a garage, shed, gazebo, etc., that is not attached to your home.

Personal Property
This protection covers your personal belongings.

Personal Liability
This coverage protects you from lawsuits if someone gets hurt while on your property. It also covers damage by those named on your policy to someone else's property and medical payments to pay for hospital bills of those injured.

Additional Living Expenses
This protection covers expenses beyond your usual living expenses if you have to live elsewhere while your home is repaired or rebuilt.

Home warranty insurance and homeowners insurance do not provide the same protection.
  • Home warranty insurance covers the repair or replacement of appliances and home systems (e.g., electrical, plumbing, heating, and cooling) that breakdown from wear and tear.

  • Homeowners insurance deals with damage and loss to your home and its contents caused by things perils like a fire, storm, or theft.

Tips for First-Time Buyers

Here are some ways to find the perfect balance between home insurance coverage and price.

Don't Focus Only On Price
Most policies provide standard protection, but it's important to consider what cheap home insurance policies exclude. You could be paying a lot of money out of pocket after a loss.

Find Discounts
When comparing policies, be sure to consider the discounts you qualify for. You could end up with quality coverage at a great price.

Know Your Home's Value
Many homebuyers insure their new home at market or tax appraisal value. Others use the amount of their mortgage loan. This can mean paying more for home insurance coverage. Remember:

  • Don't include the price of your land in your home insurance coverage.

  • Check to see if your mortgage lender requires certain coverage amounts.

  • Rely on your home insurance company to determine how much it will cost to rebuild your home in the event of a loss. That's the amount to use when selecting your coverage limits.

Shop for Value
Valuable coverages offer things like:

  • Replacement cost coverage so your loss is based on the actual cost to rebuild or replace without depreciation.

  • Inflation guard so your coverage increases on pace with rising costs.

Don't just renew your home insurance when the policy period ends. Here's why:

  • You may need to increase your coverage based on inflation. When the costs of things go up, so does the price of rebuilding your home or replacing your belongings.

  • Any renovations, updates, or improvements may increase your home's value. You may need to update your policy accordingly.
When you automatically renew, you're also cutting yourself short in savings. Compare like coverages with other companies to be sure you're still getting the best price.

How Much Homeowners Insurance Do You Need?

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Besides choosing the type of homeowners insurance, you have to decide on three other types of coverages:

  • Coverage limits
  • Policy deductible
  • Method used to calculate loss

Read on to find the right amount for your needs.

Coverage Limits

All home insurance policies have a limit on how much coverage will be provided for a loss.

A good rule of thumb is to choose a limit that sufficiently covers your investment. You can either request a particular limit or the insurance company will use its own formula for:

Dwelling Coverage
An insurance agent, builder, or appraiser can help you determine how much it would cost to rebuild your home. Take that amount and round it off to the nearest $10,000 for the coverage limit you need.

Other Structures
Base your coverage limit on how much it would cost to replace these other structures. The formula insurance companies use is 10% to 20% of your dwelling coverage.

Personal Property Coverage
Determine your coverage limit by estimating how much all your personal possessions are worth. You should include everything from appliances and clothing to home décor and money on hand. The formula insurance companies use is 50%–70% of your dwelling coverage.

Personal Liability Coverage
Your policy's limit for this coverage should be based on your net worth. Factor in any other property you own, investments, savings, inheritance, etc. Coverage options range from $100,000 to $1 million, with $300,000 the most common.

You can purchase personal umbrella policies separately if your worth is more than $1 million.

Additional Living Expenses Coverage
Choose a coverage limit that will meet any special needs you may have living away from home. This might be a crib, accessible equipment, etc. The formula most insurance companies use is 20% of your dwelling coverage.

When choosing coverage limits, always plan for the worst so you are not underinsured. But don't pay for coverage you don't need. For example, if your personal property isn't worth $250,000, then there's no need to buy that much in coverage for it.

The Policy Deductible

The policy deductible is the dollar amount you have to pay out before the insurance company pays its share. Most homeowners buy policies with deductibles ranging from $500–$1,500.

In general, the higher the deductible, the lower the cost of your insurance. However, be sure to choose a deductible that you can afford to pay if a loss occurs. If you can't pay the deductible, your insurance won't kick in.

Some policies have additional deductibles for certain coverages. For example, an insurer may require a separate deductible for losses due to hurricane windstorms. These special deductibles range from 2% to as high as 10%.

Method Used to Calculate Loss

When insurance companies pay out on a loss, they use one of three methods to calculate the amount. You have the option of choosing one method for the entire policy or different methods for each coverage.

Actual Cash Value
The insurance company pays the current market value minus depreciation. This means you receive less than what it currently costs to replace your dwelling or personal property.

While actual cash value lowers the cost of your home insurance, you have to pay more out of pocket to cover the shortfall.

Replacement Cost
The insurance company pays the full cost to replace, up to the coverage limit.

Extended Replacement Cost
The insurance company pays beyond the replacement cost up to a certain percentage to cover inflation or a price spike. That percentage ranges from 10%–30%.

How to Complete the Homeowners Insurance Application

The home insurance application involves much more detailed questions than the ones needed to get a quote. You'll need to provide specific information about you and especially about your house, including:

  • The age, style, and materials used to build it

  • Whether it is a single or multifamily house

  • The safety and security features

  • The square footage

  • Others who will be living there (including pets)

  • Whether there are any swimming pools, trampolines, or tree houses on the property

  • Mortgage lender coverage requirements

  • Prior home insurance

Once you're ready, the completed application will be forwarded to the insurer's underwriting department. They will evaluate the information, check your credit report, and review any previous personal property claims.

Most home insurance companies also conduct a home insurance inspection. The inspector will have a checklist or take photos of your property. The purpose of this inspection is to:

  • Inspect for any visible hazards, such as gutters hanging, damaged fences, etc. If there are any, the insurer will require you to fix them before issuing the policy.

  • Check that any safety and security features indicated on your application are installed and in working order.

In some cases, the insurance company may require you to increase your deductible to take on more of the risk or change your coverage amount.

Take your time with the home insurance application and provide complete and accurate information. By doing so, you will avoid having any future claims denied.

What Happens if Your Application Is Denied

Just because you apply for homeowners insurance doesn't mean your application is automatically approved. Property and casualty insurance companies often reject home insurance applications if they don't meet their underwriting guidelines.

You may be denied if your home is:

  • Older or has out-of-date plumbing or wiring
  • Located in a high crime area or one at risk for natural disasters
  • Unoccupied for long periods of time (as with vacation homes)

Your application may also be denied if you are considered high risk due to a poor credit rating, criminal convictions, or recent bankruptcy.

If you've been turned down for home insurance by one company, try applying with another insurer. Independent insurance agents and online insurance marketplaces can also be a good resources to find companies open to high-risk situations.

Contact your state insurance department if you are struggling to find an insurer. It has information about companies that insure high risks.

There's also the state-mandated Fair Access to Insurance Requirements (FAIR) plan. It guarantees fair access to home insurance for consumers having trouble getting coverage because of high-risk concerns.

Bottom Line

Buying a home insurance policy requires knowing what coverages you need and finding the best home insurance company to provide them.

Take it one step at a time. Start by figuring out what coverages you need, and then decide which way you want to shop for home insurance. Make sure to compare quotes from several insurers before making a decision.

The end goal is to find a home insurance policy that adequately protects your home and offers the best value.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

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