How to Buy Homeowners Insurance: Everything You Need to Know
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By , Freelance Personal Finance Writer
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All homeowners who have a mortgage loan on their property are required to have homeowners insurance. While those who own their homes outright aren’t required to carry a policy, it’s still recommended. Not only is homeowners insurance required by lenders, but it’s also necessary to protect your home against losses from damage, theft or injuries that occur on your property.
While this type of insurance is a necessity for homeowners, not everyone understands how to buy homeowners insurance. It's easy to become overwhelmed by the options available or unsure what type and how much coverage you need. Where your home is located and what your mortgage lender requires also play a part in determining what policy you have to buy.
Luckily, the process of buying home insurance doesn’t have to be overwhelming or frustrating. MoneyGeek covers the basics of homeowners insurance and explores how to purchase a policy that meets your needs.
Table of Contents
Key Takeaways
All mortgage lenders require you to have a homeowners insurance policy to help financially protect their investment in your home.
Even if you own your house outright, it’s still recommended that you purchase homeowners insurance to protect your home and property.
The average annual cost of homeowners insurance in the United States is 1,979.
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How to Buy Homeowners Insurance
Navigating the homeowners insurance process can be tricky for first-time homebuyers, but it’s pretty simple once you get the basics down. To purchase a policy that fits your situation, you’ll need to evaluate your insurance needs, consider optional coverages and shop around to find the best possible rates.
Key Steps To Take When Buying Home Insurance
1. Learn what your homeowners insurance needs are.
It’s best to start your search for a homeowners insurance policy by assessing how much homeowners insurance coverage you need. A standard homeowners insurance policy covers destruction to the interior and exterior of your home, loss of your possessions via theft or damage and personal liability claims for injuries that happen on your property.
If you’re buying a new home, find out what your lender requires for your policy. Different types of homes — such as condos, standalone dwellings and mobile homes — require different types of coverage. How much homeowners insurance you need depends on several factors, including your home, the value of your possessions and your budget.
Standard Homeowners Insurance Coverage
Coverage Type | How Much You Need |
|---|---|
Dwelling coverage | The replacement or rebuilding cost of your home |
Personal property coverage | The value of your personal property |
Additional living expenses | 20% or more of your dwelling coverage |
Liability coverage | Enough to cover the total value of your assets |
Medical payments coverage | Up to $5,000 |
2. Determine your desired dwelling coverage limits.
When choosing your homeowners policy limits, you'll want to purchase as much coverage as you can afford. At the minimum, MoneyGeek recommends buying a policy that can cover the replacement cost of your property if it's destroyed in a disaster.
You should also be aware that insurers typically reimburse you in three ways: actual cash value, replacement cost value and guaranteed replacement cost or extended replacement cost.
Actual cash value refers to the current, depreciated value of your home and possessions, while your home's guaranteed replacement cost is the value it would cost to repair your home exactly as it is. This number is different from the resale value, which includes the value of the land. Extended replacement cost covers 25% to 50% beyond the value of your home.
Cost of Home Insurance by Dwelling Coverage
Dwelling Coverage | Monthly Premium | Annual Premium |
|---|---|---|
$100,000 | $90 | $1,075 |
$250,000 | $165 | $1,979 |
$500,000 | $293 | $3,519 |
$750,000 | $424 | $5,086 |
$1,000,000 | $565 | $6,777 |
$2,000,000 | $1,168 | $14,020 |
$3,000,000 | $1,768 | $21,221 |
Higher coverage amounts result in higher premiums. In most cases, extended replacement coverage is the most costly insurance option homeowners can purchase.
3. Consider if you need add-ons or optional coverage.
In addition to the standard homeowners insurance coverage, you may also want to add on other policy options, such as coverage for floods, earthquakes, or other issues. Some insurers require you to purchase optional coverage for certain types of homes or homes located in certain areas. For example, you may be required to have flood insurance if you live in a floodplain.
In most cases, flood and earthquake insurance are separate policies that you must buy in addition to standard homeowners insurance. You may be able to partner with your home insurance company to buy flood insurance backed by the federal government, or you could buy your own private flood insurance policy.
Optional Homeowners Insurance Coverage
Coverage Type | What It Covers | What It Doesn’t Cover |
|---|---|---|
Flood insurance | Your home structure, additional structures on your property, and the furnishings and contents of your home | Basements and vehicles |
Earthquake insurance | Your home’s structure and contents | Outdoor buildings and areas like garages, pools and lawns |
Water backup of sewer | Damage to your home or property caused by water backup | Broken sump pumps, flooding |
Other structures insurance | Other structures on your property | N/A |
Replacement cost plus | Increases coverage by a percentage | N/A |
Ordinance or law insurance | The cost to rebuild a home and make sure it’s up to code | Additions or renovations unrelated to code |
Personal umbrella liability insurance | Additional injury or damage claims | Your own property |
4. Decide how you want to shop for homeowners insurance.
There are multiple ways to shop for homeowners insurance, including online or through an independent agent or broker.
Working with a dedicated insurance agent or broker is excellent for people who aren’t sure what their insurance needs are or need additional guidance. Shopping for insurance online is a good choice for savvy consumers who want to switch home insurance and are looking for the best deal.
5. Gather the information you need to get quotes.
Before you apply for a homeowners insurance policy, you’ll need to gather some information about yourself and your home, including:
- The address of the property
- Appraisal information
- Inspection notes
- Any prior insurance information
- Lender requirements (if you’re purchasing a new home)
- Your personal information (including info about pets)
Having this information on hand ensures you get the most accurate quote info available.
6. Compare quotes from different insurers.
It’s important to shop around for homeowners insurance policies. There are multiple factors at play when buying homeowners insurance, and all play a part in the rates you’re quoted. Factors that insurers consider when determining your rate include your home’s age, your financial history, your credit score, the home’s location, and your coverage limits. Nationally, the average cost of homeowners insurance is $1,979.
Be sure to compare home insurance quotes from at least three companies to save money on your home insurance policy. Looking at rates from multiple providers makes it easier to choose the insurer with the most competitive pricing. In some cases, you may be able to bundle coverage with other insurance policies, like auto insurance, and save hundreds of dollars per year on your premiums.
Getting rates from the best home insurance providers is an excellent place to start. These include companies like Allstate, USAA, Lemonade, State Farm, and more. Customers can also use online policy comparison tools to compare homeowners insurance quotes all in one place. Note that while price matters, it’s equally essential to compare actual coverage options to ensure that you get the financial protection you need.
Average Home Insurance Rates by State
State | Dwelling Coverage | Annual Premium | Premium % Change
vs. National Average |
|---|---|---|---|
$100,000 | $1,436 | -32% | |
$250,000 | $1,117 | -47% | |
$250,000 | $1,982 | -6% | |
$100,000 | $2,039 | -3% | |
$500,000 | $2,002 | -5% | |
$250,000 | $3,156 | 50% | |
$250,000 | $1,649 | -22% | |
$250,000 | $717 | -66% | |
$250,000 | $2,359 | 12% | |
$250,000 | $2,147 | 2% | |
$500,000 | $764 | -64% | |
$250,000 | $1,051 | -50% | |
$250,000 | $1,751 | -17% | |
$100,000 | $954 | -55% | |
$100,000 | $1,242 | -41% | |
$100,000 | $2,878 | 37% | |
$100,000 | $1,120 | -47% | |
$100,000 | $1,625 | -23% | |
$250,000 | $1,046 | -50% | |
$250,000 | $1,671 | -21% | |
$500,000 | $2,864 | 36% | |
$250,000 | $2,341 | 11% | |
$250,000 | $2,735 | 30% | |
$100,000 | $1,377 | -35% | |
$250,000 | $2,710 | 29% | |
$250,000 | $2,595 | 23% | |
$250,000 | $2,972 | 41% | |
$250,000 | $906 | -57% | |
$250,000 | $898 | -57% | |
$250,000 | $1,228 | -42% | |
$250,000 | $1,408 | -33% | |
$250,000 | $1,402 | -33% | |
$250,000 | $1,498 | -29% | |
$250,000 | $2,270 | 8% | |
$100,000 | $938 | -55% | |
$100,000 | $2,520 | 20% | |
$250,000 | $811 | -61% | |
$250,000 | $1,348 | -36% | |
$250,000 | $1,321 | -37% | |
$250,000 | $3,377 | 61% | |
$250,000 | $2,545 | 21% | |
$250,000 | $3,466 | 65% | |
$250,000 | $3,390 | 61% | |
$250,000 | $1,081 | -49% | |
$250,000 | $1,197 | -43% | |
$250,000 | $2,058 | -2% | |
$250,000 | $1,106 | -47% | |
Washington D.C. | $500,000 | $1,713 | -19% |
$100,000 | $843 | -60% | |
$250,000 | $1,257 | -40% | |
$250,000 | $1,965 | -7% |
While it’s worth considering price when shopping for homeowners insurance, it’s not always best to go with the cheapest homeowners insurance quote. MoneyGeek also recommends looking at other factors, including coverage, customer satisfaction ratings, financial stability and customer reviews.
7. Decide on a policy and finalize the details.
After comparing quotes, you’ll need to decide on a policy and finalize the details, including its billing plan, deductible and start date. If you’re buying a home, these details need to align with lender requirements to close on your loan. If you’re buying a home with a mortgage and not just replacing your current policy, you may need to get lender approval before purchasing a policy.
8. Sign on the dotted line.
Once you’ve decided on a homeowners insurance policy and finalized the details, all that’s left is to officially submit your policy application. Once you pay your first premium, you’ll have coverage for your home beginning from the start date of your policy.
Frequently Asked Questions About Homeowners Insurance
Homeowners insurance is a vital part of financially protecting your home, but finding and purchasing it can be confusing. MoneyGeek answered some of the most common questions about homeowners insurance below to help make the process easier.
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