Sometimes homeowners think they’re ill-equipped to shop for home insurance. In reality, lots of people are better prepared than they think, and many can get the coverage they need once they understand some home insurance basics.
Our tips can help you find a policy that fits your budget while still giving you peace of mind that your finances are protected. Let's get started.
Understanding the basics of home insurance
The key to shopping for home insurance is getting a handle on how coverage works. Once you have that, the rest falls into place.
What is home insurance?
Home insurance is a legal agreement between an insured (i.e., the homeowner) and an insurer (i.e., an insurance carrier). In exchange for timely payments of insurance premiums, the insurer agrees to protect the insured's property, including:
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The main structure of your primary residence.
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Other structures on your property, like outbuildings and sidewalks.
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The contents of your home.
If any of the above are damaged by a covered peril, such as fire, windstorms, theft, or vandalism, then your insurer helps you pay for repairs, up to the policy’s coverage amounts and minus any deductibles.
Moreover, most standard homeowners insurance policies also have personal liability protection. This coverage helps minimize trouble if a third party claims you caused them bodily injury or property damage.
Why home insurance is essential
In addition to being the place where you live, your home is a significant financial investment. You likely had to save up to make the down payment, and you’re probably still paying your mortgage. And as you’ve paid that mortgage (and as property values have increased), you’ve built up equity in your home.
Long story short, your home is valuable. So valuable, in fact, that replacing it would be difficult if something were to happen to it.
Your home is also valuable to your mortgage lender. It’s making money through the interest on your home loan, so it also wants to make sure that you can rebuild your home after a catastrophe. Requiring homeowners insurance helps lenders, banks, and mortgage companies know that they’ll still get paid in full for the balance of the loan if the home is damaged or destroyed.
6 steps to shop for home insurance
Following these six practical steps makes shopping for home insurance easy.
Step 1: Assess your coverage needs
Assessing your coverage needs is the first step towards figuring out how much home insurance you need, and it usually starts with your lender’s requirements. More often than not, your lender will want you to cover your home’s replacement cost. That way, it knows you have enough coverage to have your home rebuilt in the worst-case scenario.
Beyond that, you also want to determine your risk exposure. For instance, let’s say you have a lot of stereo equipment and high-end electronics in your home. That may mean you want to take a good hard look at how much personal property coverage you need.
Or maybe you have a trampoline or a swimming pool that increases the risk of someone getting hurt on your property. In that case, you might want more personal liability coverage.
Your home's location can also impact your coverage needs. Flood coverage, for example, is required if your house is in certain FEMA flood zones, but you might also want to consider adding it even if your home is outside of a designated flood zone. Many people get flood insurance as a standalone policy, but some insurance companies offer it as an endorsement.
In fact, an insurer may have other types of endorsements you can add if you have concerns about the risks that your policy excludes. Endorsements can address anything from animal liability to earthquake damage, so be sure to talk to insurance agents about your concerns and what optional coverage is available.
Step 2: Gather multiple quotes
Once you have a reasonable idea of the type of home insurance you need and the appropriate coverage amounts for your situation, then it’s time to get quotes. We recommended getting quotes from at least three different insurers to give you a sense of what’s available to you.
Working with an insurance broker is one way to get multiple quotes to compare. You might also be able to get quotes online, but in some cases, you may find that you have to call insurance agents directly.
Step 3: Compare coverage options
Your next step is to make an apples-to-apples comparison of the quotes. Cost, of course, is an important consideration, but you also need to look at the coverage included, such as:
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Coverage limits. Check that all quotes are based on similar coverage limits; otherwise, you may think you’re getting an incredible deal only to find out you actually have less coverage.
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Coverage type. Most insurers offer replacement cost coverage for your dwelling, but you may get a quote for coverage that’s written on your home’s actual cash value. This can make a big difference in the quoted premium.
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Policy deductibles. Increasing your deductible, or the amount you’re responsible for covering in a claim, usually lowers your premium. If the deductible is higher than what you can afford, then the lower premium might not be as good of a deal as you think.
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Personal belongings sublimits. An insurer may place sublimits on certain valuables, like jewelry and fine arts, that limit how much it pays in a claim. These sublimits can vary between insurers, so you want to know if you’re comparing policies with similar caps.
Also check if the quotes are for policies that cover similar perils. HO-3 insurance, the most common type of homeowners insurance, covers all perils except those listed in the policy as excluded. Other policies that only cover certain specified events may be less expensive, but that’s because they offer less coverage.
Step 4: Check for discounts
Insurance providers will usually do their best to find discounts for their policyholders. However, you know your home and your situation best, so you may want to ask about discounts for:
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Bundling policies.
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Installing security systems.
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Living in a gated or secured community.
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Buying a newer home.
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Being a first-time homebuyer.
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Owning an environmentally friendly home.
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Hardening your home against windstorms or fire.
These are just a few examples of discounts common among home insurance providers, so be sure to talk to each insurance representative about what’s available from their company.
Step 5: Research the insurer’s reputation
The internet has made it easy to learn about any insurance company’s reputation, so get online and look for reviews and customer testimonials. However, you want to weigh what you find carefully. A few bad reviews probably aren't a deal breaker, but multiple ones could be a red flag.
Also consider where reviews are posted. Review sites that verify customer information or clearly state their editorial policy may be more valuable than others.
Finally, take a look at the financial rating of each insurance company you want to work with. It can help you determine if your insurer will be there should you need to file a claim.
Step 6: Finalize your home insurance purchase
Once you’ve done your homework and reviewed the offer, it’s time to sign on the dotted line. These days, that can usually happen online. If not, you may have to go into a brick-and-mortar agency to complete your purchase. Either way, you’ll get a copy of your policy and declarations page after you pay your insurer.
Some things to remember about finalizing your purchase:
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Your insurance company may require you to have an inspection before your policy goes into effect.
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Many states allow for an underwriting discovery period where insurers conduct a more comprehensive evaluation of your property. Your insurer may adjust your premium or even cancel your policy if it finds new information that changes its view of how risky your property is to insure.
Your insurance company representative will likely explain each of these to you if they apply.
Tips for getting lower premiums on home insurance
Home insurance can be expensive, particularly if you live in an area prone to natural disasters. These tips can help you find more affordable coverage.
Improve your home’s risk profile
Every house has a risk profile based on its exposure to the perils that cause damage, and the more risk you face, the higher your premium usually is. But you can take steps to harden your home against the perils that pose the greatest risks. Depending on where you live, this could include updating your home’s major systems, upgrading your roof, or adding storm shutters. Your insurance agent should be able to direct you toward upgrades that may lower your premiums.
Bundle policies for savings
Many providers offer discounts when customers buy more than one policy. This is partly because they've discovered that bundling policies is an effective way to keep customers while also providing the coverage policyholders need. Inquire if bundling your home and auto insurance may qualify you for a discount.
Increase your deductible
Increasing your deductibles is a surefire way to lower your premium. However, it also means you’re taking on more risk (i.e., paying for a greater portion of a loss when you file a claim), so you want to be careful if your insurer lets you choose your deductible. Think about how much money you would be able to pay out of pocket if you suffer a loss.
Common mistakes to avoid when shopping for home insurance
Shopping for home insurance isn’t necessarily difficult, but there are some common missteps that you want to avoid. For instance, you don’t want to:
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Overinsure or underinsure a house. Either can cause problems, so aim for coverage that is appropriate for your circumstances.
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Ignore exclusions. People often think about what is covered and forget to investigate what’s not. Take a look at the exclusions in your policy to avoid unpleasant surprises when it comes to a claim.
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Prioritizing price over coverage. A lower price can quickly lose its luster when you sacrifice coverage. Ideally, you want to balance the premium and protection.
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Forget endorsements. Adding endorsements is often an affordable way to improve your coverage.
Key takeaways
The key to successfully finding home insurance that increases your peace of mind without blowing your budget is to be thorough. Before you buy a policy, prepare yourself with a basic understanding of what home insurance is so you can ask smart questions as you go.