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First-Time Home Buyers Insurance Guide

First-time home buyer looking for home insurance? We can help you learn what it does, how much coverage you need and what it costs.

young couple in front of first house

If you’re a first-time home buyer, you’re going to have a lot of things on your plate to take care of. Buying homeowners insurance for the first time is one of them. While home insurance isn’t legally required, if you’re purchasing your home through a mortgage lender, they will usually require you to get home insurance to protect their investment.

Getting the best home insurance coverage for your dollar requires preparation and research. Home insurance companies vary in the coverage they provide and what it costs. Your personal credit and insurance histories and the location and age of your house can affect the cost as well.

This article will give first-time home buyers tips on:

How does homeowners insurance work?

Home insurance covers your home and belongings for repair and replacement of damaged, destroyed or stolen items. It also covers liability. The most common form of homeowners insurance is the HO-3 policy. It covers damage to your home and belongings from many threats, also known as “perils”. Perils covered by an HO-3 usually include:

  • Fire and lightning
  • Wind and hail
  • Smoke
  • Riot and civil commotion
  • Theft and vandalism
  • Aircraft and vehicular damage
  • Volcanic eruption
  • Falling objects
  • Damage caused by the weight of ice, snow and sleet
  • Damage resulting from accidental discharge or overflow of water from a plumbing, heating or air-conditioning system

Home insurance covers your home’s structure and contents against sudden and accidental damage. Take the time to speak with your home insurer to make sure you have the proper coverage for your home. Most homeowners do not look at the home insurance coverage that they have until they need to file a claim. That is the wrong time to find out you’re underinsured.

Do I need homeowners insurance?

Homeowners insurance is usually not required by state law. However, if you purchase your home through a mortgage or bank lender, it’s a safe bet that they will want you to buy homeowners insurance as part of the underwriting agreement.

Even if you aren’t using a lender, home insurance is a good investment. By nature, home ownership costs a lot of money. There will be events that aren’t covered by homeowners insurance. Having a home insurance policy for incidents that are covered may free up a lot of money for the events that aren’t.

According to the Insurance Information Institute, 6% of insured homeowners made a home insurance claim for damages in 2017. The average payout of those claims was $15,532. When you consider that the average yearly premium for home insurance is close to $1,200, the cost of one claim could easily pay for close to 13 years of home insurance coverage.

How much home insurance do I need?

When looking at getting home insurance for the first time, there’s a little homework involved in order to get the best coverage for you. You should have enough home insurance to cover everything if a total loss occurs. A standard home insurance policy has three main parts that you should look at separately in order to make sure your total home coverage is adequate:

Dwelling

Your dwelling coverage should be enough to cover a complete rebuild of your home. Dwelling coverage protects the structure of the house, as well built-in systems like your heater and attached structures such as a porch, patio or garage.

When figuring out the dwelling coverage amount, only calculate the rebuild cost of your house. The rebuild value is different from the market value of the home, as it does not include the land the house is on.

Personal property

Personal property coverage, also known as contents coverage, protects your belongings against covered damage in your policy. Your clothes, furniture and television are among the things content coverage takes care of. An HO-3 policy usually provides content coverage at 50% to 70% of your dwelling coverage amount. For example, if you had $350,000 in dwelling coverage, your property coverage would be between $175,000 and $245,000.

Depending on your belongings, the base contents coverage amount may not be enough to replace all of your things in the event of a complete loss. The best way to figure out how much you need for personal property coverage is to put together a complete inventory list of your possessions. A good time to put this list together is when you’re moving. An inventory list is a great tool to make sure you can file an accurate claim, and it may help speed up the claims process.

Liability

The liability portion of your home insurance provides coverage if you, a family member or a pet causes injury or property damage. A standard home insurance policy usually has a minimum liability limit of $100,000. While this may seem like a lot of money, a lawsuit or medical bills after a serious injury can easily cost twice that, maybe more. We advise increasing your liability limit to at least $300,000.

This will put you in a much more comfortable place if you need to file a large liability claim, and the premium cost difference between $100,000 and $300,000 in liability coverage isn’t a large jump. Most insurers offer liability up to $500,000, which you should consider if you can afford it.

Ask your home insurer what the cost difference would be if you increased liability coverage to $400,000 or $500,000. If even the $500,000 limit isn’t enough, look into an umbrella policy, which extends the limits of your liability coverage.

When do I need to buy home insurance?

If you’re working with a mortgage lender, they will usually require you to acquire home insurance before the loan can be finalized and funded. You will bring proof of home insurance to the closing process.

Alternatively, you might be able to fax proof to the lender before the closing. Should you refinance at a later date, lenders will often want proof of home insurance then as well.

If you’re not using a lender, it’s a good idea to start comparing home insurance quotes as soon as you sign the papers on your new home. This gives you time to find the best homeowners insurance coverage for your needs before you move in.

Before you buy a home insurance policy

Before you buy home insurance for the first time, there are a few tips to take into consideration:

Be aware of your credit score

If you’re working with a lender, they will probably access your credit score in order to see if you qualify for a loan. This is one way of finding your credit score, but there are free services online through which you can learn your credit score as well.

Insurance companies often look at credit scores as a factor in home insurance rates. If you have bad credit, you're going to pay more for home insurance. A QuoteWizard study found homeowners with terrible credit scores pay 444% more for home insurance compared to a homeowner with excellent credit.

You can improve your credit score with some simple steps. Debt management, checking your credit report and removing unauthorized inquiries can help increase your credit score and reduce your home insurance premium. You can begin most of these steps before you even apply for a loan.

Get a home inspection

Simply put, always get the house inspected before you buy it. An inspection from a licensed professional can help spot any damage or ongoing problems that will lead to damage. If your home is older than 25 years of age, insurers usually require an inspection in order to gauge coverage risks.

The best way to avoid home insurance claims is to prevent them. An inspection will let you know what would need repair, as well as any problems that may mean it isn’t worthwhile to buy the house.

Shop around

The home insurance industry is highly competitive, and insurers know it. Compare home insurance rates from many different insurers before you buy your first home. This way you can be sure that you’re getting the best home insurance premium.

Cost of insurance for first-time home buyers

According to the Insurance Information Institute’s most current data, the average cost of home insurance nationwide is $1,192. However, your premium may vary based on different factors such as:

  • Your home’s age, construction materials and condition.
  • Weather and crime risks in the home’s area.
  • Your credit and insurance history.
  • Your deductible.

Millennials currently make up the highest percentage of first-time home buyers in the country. The following tables show average home insurance premiums for the top home insurers in the five states with the best housing markets for millennials, along with each state’s average home insurance premium.

Iowa

Company Average yearly home insurance premium

Allied Property & Casualty Insurance

$1,312

American Family

$1,855

Auto-Owners Insurance

$1,055

Farm Bureau Property & Casualty

$1,542

IMT Insurance

$845

Nationwide Affinity

$1,208

State Farm Fire & Gas

$1,463

Travelers Home & Marine Insurance

$1,200

West Bend Mutual Insurance

$1,020

Average premium

$1,278

Company premiums are based on non-binding estimates provided by Quadrant Information Services. Your rates may vary.

Indiana

Company Average yearly home insurance premium

Allstate Vehicle & Property Insurance

$685

American Family

$985

Erie Insurance

$1,125

Indiana Farmers Mutual Insurance

$816

Property Owners Insurance

$1,829

State Farm Fire and Casualty

$1,203

TravCo Insurance

$1,353

Average premium

$1,142

Company premiums are based on non-binding estimates provided by Quadrant Information Services. Your rates may vary.

Missouri

Company Average yearly home insurance premium

American Family Mutual Insurance

$1,955

Auto Club Family Insurance

$1,048

Liberty Insurance

$2,195

Shelter Mutual Insurance

$1,506

State Farm Fire & Casualty

$1,553

Travelers Home & Marine Insurance

$1,543

Average premium

$1,633

Company premiums are based on non-binding estimates provided by Quadrant Information Services. Your rates may vary.

Ohio

Company Average yearly home insurance premium

Allstate Vehicle & Property

$787

Auto-Owners Insurance

$855

Cincinnati Insurance

$663

Erie Insurance Exchange

$785

Grange Mutual Insurance

$856

Liberty Mutual Fire Insurance

$1,317

Nationwide Property

$881

State Farm Fire & Casualty

$954

Average premium

$887

Company premiums are based on non-binding estimates provided by Quadrant Information Services. Your rates may vary.

West Virginia

Company Average yearly home insurance premium

Allstate Vehicle & Property Insurance

$847

Erie Insurance Property & Casualty

$909

LM Insurance Corp

$1,859

Nationwide Property & Casualty

$1,251

State Farm Fire & Casualty

$1,096

Average premium

$1,192

Company premiums are based on non-binding estimates provided by Quadrant Information Services. Your rates may vary.

Methodology

We gathered data across five states for one base homeowner, age of home and home insurance policy type. We set our base profile as a 35-year-old first-time home buyer of a house built in 1990. The profile of the policy included $219,300 in dwelling coverage, $109,650 in personal property coverage and $100,000 in personal liability.

For each state, we gathered the average yearly premium of the most popular home insurance providers in the state. We then compiled a statewide home insurance premium average.

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