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How Do I Buy Homeowners Insurance?

Shopping for homeowners insurance? Learn here exactly what you need to buy for the best home insurance coverage.

shopping for home insurance

Buying home insurance is not a one-size-fits-all process. You want to have the correct home insurance coverage specific to your home and finances to avoid being over-insured or, worse, under-insured.

When shopping for homeowners insurance, you'll need to figure out what dwelling, contents and liability coverage to get, as well as what premium and deductible you can afford. While this sounds like a lot of work, it's relatively straightforward and can help you get the best home insurance quote.

This article will give you advice on how to buy home insurance, including:

Choosing your home insurance coverage limits

When estimating how much home insurance you need, it's easy to mistake the overall coverage limit as how much you will get paid out of dwelling, contents, liability and all other coverage types under your policy. If you buy a $350,000 home insurance policy, that means you have a $350,000 limit on dwelling coverage. After that, it depends on the coverage type in question.

A home insurance policy can be broken down into three main sections:

  • Dwelling
  • Contents
  • Liability

Study each section in relation to your personal home insurance needs, then decide how much coverage each section requires.

Dwelling

Dwelling coverage protects the structure of your home in the event of a covered threat damaging or destroying the house. Dwelling coverage also protects attached structures such as porches and garages. Built-in appliances such as a heater or air conditioner are also considered part of the structure of your home.

When buying dwelling coverage, you want enough to pay for a complete rebuild of your house if it were totally destroyed. If you do not know the rebuild cost of your house, consider hiring a professional to estimate the replacement value of your exterior and roof.

For the interior of the house, get appraisals for the replacement of the flooring, cabinets and HVAC systems to figure into the home's replacement cost. These are tasks you could probably do yourself, but getting an estimate from a professional gives you a better chance of an accurate appraisal.

An HO-3 policy, the standard home insurance policy, covers your home for open perils. That means your home is covered against any peril as long as it is not excluded in writing in your policy.

Contents

Contents coverage, also known as personal property coverage, is protection for the belongings in your house. Your furniture, clothing, television and the like are all covered by it. Home insurance usually covers the contents of your home between 50% and 70% of the dwelling coverage limit. This means that if you buy a $300,000 home insurance policy with 60% content coverage, your content coverage limit would be $180,000.

It's important to know that your belongings are not covered equally. Categories of valuable belongings such as jewelry, furs and art often have a separate limit lower than the policy content coverage limit. There may also be an individual piece limit and maximum category limit. This means that your jewelry may be covered up to $1,000 per piece, with a $5,000 limit for all jewelry on a claim.

If you have a large collection of jewelry or other valuables, consider buying a rider for your valuables. An insurance rider is an endorsement on your home insurance. It provides coverage beyond the standard limits of your policy. A rider tends to be expensive and requires you to get the items appraised before they can be covered. However, a rider may cover your valuables at their full appraised value against perils that even homeowners insurance does not cover, such as accidental loss of a covered item.

Contents coverage is usually provided on a named perils basis. This means that your belongings are covered for, and only for, perils listed in your home insurance policy. Many home insurance providers also offer contents coverage on an open peril basis, but it often costs more. Getting open peril contents coverage is advised if you can afford it.

Liability

The liability coverage portion of your home insurance protects you if you, a family member or a pet causes damage or injury to another person or their property. Most home insurance companies have a minimum liability limit of $100,000.

This may seem like a high amount, but if the event involves an extensive lawsuit or prolonged hospital stay afterwards, $100,000 can be eaten up quickly. This can leave you having to pay the remaining balance yourself.

Home insurers usually offer liability up to $500,000. The closer you can get to that limit, the better. When buying home insurance, ask how much it would cost to increase your liability coverage to an affordable limit.

Umbrella policies provide liability coverage beyond the maximum limit of your home insurance policy. An umbrella policy can typically be purchased in $1 million increments, up to $5 million. If you own a lot of property or have significant financial holdings, ask your home insurer how much an umbrella policy would cost.

Choosing your claim payout methods

Part of how much the home insurance policy you buy will cost is how you want claims to be paid out. Your claims can usually be paid out either at replacement cost or actual cash value (ACV).

Replacement cost pays out at the amount needed to replace or repair damaged, destroyed or stolen property, even if the amount is higher than what you paid for the covered item or property, up to your policy limit.

ACV pays out the amount needed to replace the item or property in question, with depreciation taken into account. This means that if your vintage couch is destroyed, you're going to get paid out what it was worth when it was produced, not how much it is worth now.

We recommend getting a replacement cost home insurance policy if you can afford it. A replacement cost policy may cost a bit more, but it also means a better payout if you have to file a claim.

How to pick a home insurance company

Once you've established the home insurance coverage you need to buy, the next step is finding the best quote for you. If you just bought a new house, or if this is your first house, finding a solid provider to buy homeowners insurance from is a high priority. You're not going to want to have to buy a new home insurance policy soon after you buy the first because you're underinsured in one area or another.

Looking online for homeowners insurance quotes is a relatively stress-free way to shop. You can compare quotes side by side in order to find the proper combination of affordability and coverage.

The home insurance industry is highly competitive. Good insurers know they're not the only game in town, and that you have choices. Read reviews about the best home insurance companies. Prioritize your home insurance needs and get quotes from insurers that fulfill those needs the best.

Another option is to let an insurance broker find a quote for you. While an insurance broker can have the knowledge and experience of an insurance agent, a broker does not work for a particular insurance company. Their purpose is to support your own insurance needs, not those of an insurance provider. Having an insurance broker who can do all the detailed work to find you the best home insurance options can save you time and provide you with quotes you may not find on your own.

There is also word of mouth. Talk to family, friends and coworkers and find out who they chose for home insurance. Find out how their home insurer takes care of claims and how happy they are with their provider.

Getting the best home insurance premium

Your premium is how much you pay yearly to maintain your home insurance. Your base premium is calculated on factors including:

  • Age of your home
  • The house's rebuild cost
  • Construction materials used
  • Home insurance claim history for your area
  • Your personal insurance claim history

When buying home insurance, there may be options available to you that can reduce the cost of your premium:

  • Ask your insurer what discounts you qualify for. Most home insurance companies offer premium discounts for a wide variety of reasons.
  • If you bundle a home insurance policy with an auto or life insurance policy you already have, you can save money on both policies.
  • If you increase your deductible amount, you may see a reduction in your premium.

How to find your deductible

Your deductible is how much you need to pay before your home insurer pays the remaining amount of the claim. There are two deductible options you can choose from: dollar-amount or percentage deductible.

A dollar-amount, or flat, deductible is a fixed dollar amount you pay per claim made. For example, if you have a $500 flat deductible and increase it to $1,000, you may see a 10% decrease in your premium cost.

A percentage deductible requires you to pay a set percentage of your home's coverage limit per claim. For example, if you have a 5% deductible and your house is valued at $350,000 you will have to pay a $17,500 deductible before your home insurer covers the rest.

A percentage deductible can lower your premium a lot, but can easily not be worth it. If it's a 2% to 3% deductible, it may be a good long-term way to save money. But once your deductible is 5% or higher, it can become cost-prohibitive. In order to save money with a high-percentage deductible, you would have to make next to no claims. If you could guarantee that, you wouldn't need home insurance in the first place. Dollar-amount deductibles tend to be a better way to save money when buying home insurance.

Meeting the home insurance inspector

Home insurers often want the house inspected before underwriting a policy. This is to make sure that you get the proper coverage you need, but also to see if there are any insurance risks they're not aware of. Some providers do not require an inspection before selling a home insurance policy, but they are few and far between.

A home insurance inspector will look at how recently your electrical and plumbing systems, heating, roof and other parts of the house have been upgraded. They will also look at the construction and materials used in building the house. Furthermore, they will look at opportunities for better security and liability reduction to help you lower your risk of a claim.

When the inspector arrives, there are some things you can do beforehand to make the inspection go smoothly:

  • Tidy up. If the house is cluttered, the inspector could read that as a fire hazard or a potential liability issue.
  • Have records of any home systems or construction updates that have been performed recently.
  • Be ready to show what alarms or other security systems are in your home.

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