How to buy homeowners insurance

Find the right coverage to protect your property

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When you apply for a mortgage, the lender will likely require homeowners insurance before funding your loan. This insurance helps protect their investment if something unexpected damages or destroys your home, such as a fire or severe weather.

Even if you don't purchase your property through a lender, getting homeowners insurance to protect against unforeseen events is still a good idea. Compare different insurance companies and policies to find one that will fit your budget and coverage needs.


Key insights

Homeowners insurance is a safeguard against specific perils that result in damage or loss of your home or belongings.

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When shopping for homeowners insurance, first determine how much coverage you need, then compare different providers to find the best rate and policy.

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Review your policy annually to ensure you have an appropriate level of coverage to protect your assets.

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What is home insurance?

Homeowners insurance covers the costs of repairing or replacing your home and belongings after a qualifying damage or loss. This may include damage caused by fire, severe weather, theft or vandalism. There are several types of home insurance coverage.

“Dwelling coverage, for example, is the part of the policy that comes into play when structural damage occurs from events like fires or severe weather,” said Misty Spittler, a licensed public insurance adjuster and specialist in handling property damage claims. “In one case, we assisted a homeowner in successfully navigating their claim after their roof was severely damaged by hail, ensuring that the dwelling coverage provided the funds needed for a full roof replacement.”

Personal property coverage is another aspect of homeowners insurance. It can help replace personal belongings that are lost or destroyed due to a covered peril. Liability coverage can help with medical and legal expenses if you’re held liable for someone harmed on your property.

According to Spittler, living expenses coverage is also a crucial part of your homeowners insurance.

“I've witnessed how this coverage provided vital financial support for temporary housing and daily living costs for a family after a fire made their home temporarily uninhabitable, allowing them to maintain their quality of life during the restoration period.”

However, standard homeowners insurance policies often exclude certain perils, such as floods, earthquakes or maintenance issues. Read your policy carefully to understand what events it covers so you can purchase additional insurance if necessary.

» MORE: What does homeowners insurance cover?

Determining your coverage needs

Before buying homeowners insurance, you should first determine your coverage needs. Here are the primary types of coverage included in standard policies:

Dwelling coverage

Dwelling coverage reimburses the cost of repairing or replacing the structure of your home if it is lost or damaged in an event like a fire or wind damage.

When shopping for homeowners insurance, make sure that the dwelling coverage will at least cover the total amount needed to fully rebuild your home. You can request an insurer or professional appraisal to determine your home’s replacement cost.

You might also want to consider extended replacement cost coverage or guaranteed replacement cost coverage to safeguard against inflation and rising costs of building.

Personal property coverage

Personal property coverage is another important part of your policy that will replace the belongings inside your home, such as furniture, clothing and electronics.

Create an inventory of your possessions so you can determine how much it would cost if you were to lose everything. An inventory can also be helpful in the aftermath of a disaster when it’s difficult to remember all of the stuff you had.

Other structures coverage

You should also ensure that you have appropriate coverage for any external structures on your property, such as a shed, barn, detached garage, gazebo or pool.

Although dwelling coverage will cover some of the damage done to external structures, there's normally a limit of 10% of your dwelling coverage. Therefore, you may want to purchase additional insurance to protect them fully.

Liability coverage

Liability coverage provides some protection if you’re held liable for someone who was injured on your property. For example, let's say you host a party, and your dog bites one of your guests; the guest could file a lawsuit against you.

Without homeowners insurance, you'll have to pay for the damages yourself. However, with liability coverage, you can get assistance paying for medical bills or any other awarded damages.

Understanding policy types and add-ons

HO-3 policies are the most prevalent type of homeowners insurance. They provide more comprehensive coverage than HO-1s or HO-2s, which are pretty basic policies.

HO-3 insurance covers damage to your home and possessions unless it’s from a peril expressly excluded from your policy. It also generally includes personal liability coverage.

If you’re looking for even more coverage, you may consider an HO-5 policy, which offers extra protection for your belongings. However, the broader coverage comes with a higher price.

Alternatively, you can amend your policy using endorsements, also known as riders, to customize your coverage to your needs. For example, you might add additional coverage, such as water backup, ordinance or law, identity theft or earthquake insurance.

» MORE: How much does homeowners insurance cost?

Steps to purchase home insurance

Finding the right policy and insurance provider can feel overwhelming. However, there are common steps to take so you can find a policy tailored to your needs and budget.

  1. Evaluate your coverage needs. Start by assessing the level of insurance you need for your home and personal belongings. You can hire a professional appraiser to estimate the replacement value of your home and make a list of your possessions. Make sure to consider the age and location of your home, the value of your possessions and additional structures on your property.
  2. Research insurance providers. Find reputable insurance providers in your area and check their customer reviews and available discounts. Bundling your homeowners and auto insurance may qualify you for a discount.
  3. Get multiple quotes. Request a quote from multiple insurance providers. Compare their monthly premiums against the coverage you would receive. Keep in mind that a higher deductible may mean a lower premium, but you would have to pay more if you make a claim.
  4. Customize your policy. Work with an insurance agent to customize your policy to meet your specific coverage needs and budget. This may involve adjusting coverage limits or adding endorsements for additional protection.
  5. Finalize your policy. Once you decide on the provider and policy, review the final documents carefully before signing. Your provider should send a declaration page outlining important information about your policy. Make sure you understand all the terms and conditions and ask for clarification in writing on anything you’re unsure of.
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FAQ

Does homeowners insurance cover natural disasters?

Homeowners insurance covers many natural disasters, including tornados, hurricanes, volcano eruptions, lightning and extreme cold. However, you may need to add coverage for perils not covered by standard policies, such as floods, landslides, earthquakes and tsunamis.

What's the difference between actual cash value and replacement cost?

When determining the replacement cost for your home or belongings, actual cash value factors in depreciation, whereas replacement cost does not.

How often should I review my homeowners insurance?

You should review your homeowners insurance policy yearly to ensure it still provides sufficient coverage. If you've made any renovations or additions to your home or if your home's value has changed, you should adjust your coverage limit accordingly.

Can my homeowners insurance be canceled?

Yes, your insurance provider can cancel your policy under certain circumstances, like if you don't pay your premiums or misrepresented information on your application. They may also cancel if your property becomes high risk due to safety hazards or neglected maintenance.

Bottom line

Homeowners insurance can protect your financial security if your home or belongings are lost or damaged during an unforeseen event.

To determine your coverage needs, consult with an insurance or professional appraiser to calculate the replacement cost of your home. You should also inventory your belongings to determine the amount of coverage you need for personal property.

When shopping for homeowners insurance, research multiple providers and request quotes so you can compare premiums and coverage amounts.


Article sources

ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:

  1. Experian, “How to Calculate the Replacement Cost of Your Home.” Accessed May 7, 2024.
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