What Should You Look for When Shopping for Homeowners Insurance?


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ByMark Fitzpatrick
Edited byRae Osborn
ByMark Fitzpatrick
Edited byRae Osborn

Updated: May 22, 2024

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Before getting homeowners insurance, there are several factors to look out for beyond the costs, such as the coverage limits and deductibles available, the reputation of the company, additional coverage options and discounts you may qualify for. Each of these vary based on the provider, which is why doing your research and comparing quotes is essential before buying home insurance. To understand what to look for in homeowners insurance, discover what it covers, what the fees involved are and how to evaluate a company’s reputation.

How to Choose a Homeowners Insurance Policy Based on Your Needs

Choosing a homeowners insurance policy involves weighing several factors, such as the coverage limits, premiums, deductibles, replacement types and discounts a provider offers. Additionally, it's important to consider the insurer's customer service reputation and claims process, as these elements can significantly impact your experience in the event of a claim.

Examining each factor can prolong your search, but doing so ensures you find the best possible provider and policy for your needs.

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    Coverage

    Consider the extent of coverage offered by the policy. Ensure it adequately protects your home and personal belongings, covering risks like fire, theft, natural disasters and liability.

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    Premiums or Cost

    The cost is the next thing to consider after determining suitable coverage limits for your needs. Your coverage limits often dictate your costs — the higher the limits, the higher the premium. Make sure to balance your budget with your coverage needs and avoid opting for lower limits just to save on costs.

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    Deductible

    The deductible is the amount you'll need to pay out of pocket before your insurance coverage takes action. Higher deductibles typically result in lower premiums, but you should be prepared to cover that cost in case of a claim. Thus, choosing a deductible that aligns with your budget is essential.

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    Replacement Cost Value vs Actual Cash Value

    Understand the difference between these two coverage options for your personal property coverage. Replacement cost pays to replace your damaged or stolen items at their current market value but costs more, while actual cash reimburses you for their depreciated value. Decide which option suits your needs and budget better.

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    Discounts

    Inquire about discounts that may be available to you. For instance, bundling your homeowners insurance with other policies like auto insurance, installing security systems, or having a claims-free history can significantly reduce your premium costs.

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    Customer Service & Claims Process

    Research the insurance company's reputation for customer service and claims process. Look for reviews and ratings online to ensure a smooth experience when filing a claim. Quick and efficient claims processing is crucial during stressful times.

By carefully considering these factors, you can tailor your homeowners insurance policy to your specific needs, ensuring you have the right coverage to protect your home and belongings.

Understanding Homeowners Insurance Coverage

Homeowners insurance typically encompasses coverage for your dwelling, personal property, liability protection and additional living expenses. Understanding the specifics of each coverage component and setting appropriate limits is crucial. Here's a breakdown of what to consider:

  • Dwelling Coverage: Dwelling coverage covers the structure of your home. Ensure your coverage limit aligns with the cost of rebuilding your home in case of a total loss.
  • Personal Property Coverage: Personal property coverage insures your belongings, such as furniture and electronics. Take inventory of all your possessions and select coverage limits accordingly.
  • Liability Coverage: Personal liability coverage protects you from legal claims due to bodily injuries of guests while on your property or property damage caused by you or your family.
  • Loss of Use Coverage: This is also called additional living expenses; it covers expenses for temporary housing if your home becomes uninhabitable due to a covered peril.

When determining coverage, assess your unique circumstances and consult with your insurance provider to ensure you have adequate protection.

Knowing the Additional Home Insurance Coverage Options

In addition to standard coverage, homeowners can enhance their insurance policy with various additional coverage options. It's important to note that the availability of these extras can vary by provider, so not all insurers offer the same options. Some common additional coverages to consider include:

  • Scheduled Personal Property: This coverage allows you to insure valuable items beyond the limits of your standard policy. This often includes jewelry, real furs, cameras, musical instruments, silverware, fine arts and golf equipment, among other items. Most insurance companies offer this type of add-on.
  • Earthquake Coverage: Protects your home and belongings from damage caused by earthquakes, which are typically not covered under standard policies. However, some insurers may only cover fire losses resulting from an earthquake.
  • Flood Coverage: Most home insurance policies have limited coverage for water damage. Flood insurance provides broader protection against flood-related losses, especially for those in flood-prone areas.
  • Identity Theft: This coverage assists in identity theft, covering expenses related to restoring your identity, such as legal fees and lost wages.
  • Sewer Backup Coverage: This provides reimbursement for damage caused by sewer or drain backups to sewers and sump pumps, which can result in costly repairs.

When considering these additional coverage options, it's essential to assess your specific needs and risk factors and then inquire with your insurer about their availability and cost.

Average Cost of Homeowners Insurance

The price of home insurance is greatly influenced by the amount of dwelling coverage you choose, which covers rebuilding or replacing your home if it incurs structural damage from an insured event. The typical cost for a home insurance policy providing $250,000 in dwelling coverage averages $2,614 annually, or around $218 monthly. Increasing the coverage limit to $500,000 raises the average annual cost to $4,373, marking an increase of $1,759 for twice the amount of coverage.

$100K Dwelling / $50K Personal Property / $100K LiabilityAverage Annual Premium$1,518
$250K Dwelling / $125K Personal Property / $200K LiabilityAverage Annual Premium$2,614
$500K Dwelling / $250K Personal Property / $300K LiabilityAverage Annual Premium$4,373
$750K Dwelling / $375K Personal Property / $500K LiabilityAverage Annual Premium$6,139
$1MM Dwelling / $500K Personal Property / $1MM LiabilityAverage Annual Premium$7,947

When selecting homeowners insurance, it's crucial to balance the level of coverage with the premiums you can afford. Opt for a policy that provides comprehensive protection for your property and belongings, while ensuring the premium fits within your budget to maintain long-term financial stability.

What Is a Home Insurance Deductible and How Do You Choose Yours?

In homeowners insurance, the deductible is the amount you must pay out of pocket before your insurance coverage kicks in. It's an essential aspect of your policy, influencing your premium costs and how much you'll pay in the event of a claim. Take a look at how rates can vary based on different coverage and deductible amounts:

Data filtered by:Results filtered by:
Coverage:
Coverage:$100K Dwelling / $50K Personal Property / $100K Liability
$500Annual Premium$1,635
$1000Annual Premium$1,518
$1500Annual Premium$1,441
$2000Annual Premium$1,360

Selecting the right deductible for your home insurance policy can significantly affect your annual premium costs. For instance, for $100,000 in dwelling coverage, opting for a $500 deductible might result in an annual premium of $1,635, whereas the same policy with a $2,000 deductible costs $275 less.

Similarly, for $250,000 in dwelling coverage, a $500 deductible may come with a $2,821 annual premium, while a $2,000 deductible makes the policy cost $487 less. As you can see, there is a trade-off between premium affordability and the financial responsibility you assume when filing a claim.

Replacement Cost Value (RCV) vs. Actual Cash Value (ACV)

Understanding the difference between Replacement Cost Value (RCV) and Actual Cash Value (ACV) is key in choosing homeowners insurance, as these terms determine how your insurance will replace lost or damaged items.

RCV covers the expense of replacing or repairing your property without deducting for depreciation and is usually the standard for dwelling coverage. This means your home can be rebuilt or repaired at current market prices. By default, dwelling coverage is replaced at RCV, ensuring your home can be rebuilt or repaired at today's market prices.

In contrast, ACV factors in depreciation, offering reimbursement based on the present market value of the item. This is typically applied to personal property coverage. If you wish to have RCV for your personal property, you can pay extra, but discuss it with your insurance provider.

Knowing Your Homeowners Insurance Discount Options

While many homeowners insurance providers offer discounts, it's essential to recognize that the availability of these discounts can vary significantly from one insurer to another. Moreover, not all the discounts listed below may be offered by every provider.

Let's delve into the various discounts commonly available in the homeowners insurance market to help you understand the potential savings you can secure:

Discount
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Bundling

When you bundle your home and auto insurance with the same provider, you can often enjoy a bundling discount, which lowers your overall premium costs.

Protective Devices

Installing security systems, smoke detectors or other protective devices in your home can lead to reduced insurance rates, thanks to the added safety measures.

New Home

If your home is relatively new and meets certain criteria, you may be eligible for a discount as most insurers typically consider newer homes to be at lower risk for claims.

Claims Free

Maintaining a claims-free history demonstrates responsible homeownership and can result in reduced premiums over time.

Home Renovation

Home improvements that enhance safety or reduce risks, such as upgrading your roof or electrical systems, may qualify you for lower insurance rates.

How to Evaluate a Home Insurance Provider’s Customer Service Reputation

Evaluating a home insurance provider's customer service reputation through online reviews, rating sites and social media and getting tips from family and friends is a critical step in choosing the right insurer. This helps you make informed decisions, and also gives you an idea of the company’s overall reputation. To gather valuable insights, consider exploring:

  • Online Reviews: Check platforms like Yelp, Google Reviews and specialized insurance review websites for feedback from policyholders about their experiences.
  • Rating Agencies: Consult reputable rating agencies like J.D. Power, A.M. Best and the Better Business Bureau to assess an insurer's financial strength and customer satisfaction ratings.
  • Social Media: Visit the insurance company's social media profiles to gauge their responsiveness and engagement with customers, as well as to review comments and interactions.
  • Family and Friends: Seek recommendations and firsthand experiences from family members and friends who have dealt with the same insurance provider. Their insights can help you understand the insurer's reputation for customer service.

About Mark Fitzpatrick


Mark Fitzpatrick headshot

Mark Fitzpatrick has analyzed the property and casualty insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. Currently, he leads P&C insurance content production at MoneyGeek. Fitzpatrick has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.