Shopping for a new home insurance policy is an important part of protecting your home, personal belongings, and assets. Fortunately, it’s easier now than ever to shop for coverage, whether you’re purchasing a policy for your first home, are dissatisfied with your current provider, or simply want to ensure you have the best coverage and rate for your current situation.
Just follow these seven steps to make sure you choose the right homeowners insurance coverage for your needs.
7 steps to shop for home insurance
Here’s your action plan to successfully shop for a new home insurance policy.
#1: Assess your coverage needs
You should carry enough coverage to rebuild your home based on current material and labor costs. You can determine that amount by multiplying your home's square footage by local cost-per-square-foot building costs or by contacting your insurer.
The resulting number reflects the minimum amount of dwelling coverage you need. Dwelling coverage covers your home’s primary structure, including the roof, walls, foundations, and any built-in or attached systems or structures.
Other coverages to consider
In addition to dwelling insurance, you may also want to consider the other common coverages when assessing your needs:
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Other structures coverage: Pays to repair or replace structures not attached to your primary residence, such as sheds, fences, and detached garages. The standard limit for this type of coverage is 10% of your dwelling insurance.
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Personal property coverage: This part of your policy covers the cost of repairing or replacing your belongings, such as furniture, clothing, electronics, appliances, and tools, after a covered peril. The standard limit for personal property coverage is 50% of your dwelling insurance. However, you should consider purchasing extra coverage if you have high-value items, like collectibles, art, or jewelry.
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Loss of use coverage: This part of a policy pays for additional living expenses you may incur if your home becomes uninhabitable after a covered loss. Covered costs can include alternative housing, such as a hotel, dining expenses, laundry services, etc. The standard limit for this type of coverage is 20% of your dwelling insurance, though it varies by insurer and policy.
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Personal liability insurance: If you or a household member injures someone or damages their property, this coverage will help pay for associated medical bills or property repairs/replacements. Generally, you should carry at least $300,000 in personal liability insurance. However, you may want more if you’re at a higher risk for claims, as may be the case if you have a pool or trampoline, entertain often, or have a high net worth.
Tip: If you already have home insurance, check your policy declarations page to see your current limits for each type of coverage included.
Actual cash value vs. replacement cost
There are two primary methods insurers use to determine a claim payout:
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Actual cash value coverage (AVC) pays claims based on the value of your home minus depreciation. This type of policy is cheaper, but you may be stuck with more out-of-pocket expenses after a claim.
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Replacement cost value (RCV) coverage bases claim payouts on the cost to rebuild or repair your home to its previous state based on the current price of labor and materials. A policy with replacement cost coverage provides more financial protection after a covered peril.
In some cases, policies automatically include replacement cost coverage. In other cases, a basic policy may leverage actual cash value coverage, with the option to enhance coverage with an endorsement.
#2: Gather multiple homeowners insurance quotes
Shop around and get quotes from at least three different home insurance companies. Though many insurers offer similar coverage amounts and types, rates can vary significantly by company.
Getting multiple quotes can help you find the best coverage and rates for your needs.
For the most effective comparison, get quotes for the same type and amount of coverage. Try to choose the same deductible for each quote, though the options may vary slightly by insurer. For instance, one insurer may offer a deductible as low as $500, while another may have a minimum deductible of $1,000.
#3: Compare home insurance quotes
After you get multiple quotes, compare home insurance policies and rates, taking specific note of the following:
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Coverage limits. Check the limits for each type of coverage included in the policy. Even if you get a quote for the same amount of dwelling coverage, you may find other coverage limits vary by insurer.
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Policy exclusions. Most insurers exclude specific issues, like flood-related damage, from coverage. However, exclusions vary by insurer. For instance, one insurer may exclude certain dog breeds while another does not.
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Reimbursement methods. Standard reimbursement options include actual cash value and replacement value coverage. Replacement value coverage offers more comprehensive financial protection, though it may come with a slightly higher premium. Still, some insurers offer options, like extended replacement cost coverage, which can further enhance financial protections.
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Deductibles. If you couldn’t select the same deductibles for each quote, note how the variations affect rates and your ability to cover the deductible after a claim.
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Additional features or endorsements. Even though policies are similar, some may offer extra features or policy add-ons (also known as endorsements) to enhance coverage. Some may be automatically included with your policy, while others may require an additional fee. Note any features or endorsements that may make one policy more valuable than another.
Look for a balance of robust coverage and affordability before deciding on the best home insurance provider and policy.
#4: Check for discounts
Home insurance discounts are an easy way to lower your premium price. Here are some of the most common discounts homeowners may qualify for:
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Age-related discounts, such as being 55 or older
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Bundling or multi-policy discounts for purchasing more than one type of coverage, such as home and auto insurance
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Claims-free discount
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Electronic payment
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Paperless discount
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Risk mitigation discounts, such as those for hardening your house against wind or fire
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Loyalty discounts if you remain a customer for a specific period
If you’re applying for quotes online, consider following up with the insurer by phone to ensure your quote accurately reflects any discounts you’re eligible for.
#5: Research the insurer's reputation
After narrowing your options, review each home insurance company to ensure they can offer reliable coverage and support after a claim. There are several steps you can take to analyze an insurer’s reputation:
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Check reviews. These can include customer reviews, such as those on sites like Trustpilot, and professional reviews online.
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Speak with family, friends, or colleagues about their experience with an insurer.
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Check the insurer’s financial ratings as provided by insurance and credit rating agencies like Demotech, Inc. and AM Best. These ratings indicate how likely an insurer is to meet its payment obligations after a claim.
#6: Finalize your policy selections
Once you choose an insurer, it’s time to finalize your policy selections based on your needs. As you review the quote, take note of the following:
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Coverage limits. Ensure the quote accurately reflects the limits for each type of coverage in the policy and that those limits reflect adequate protection for your property..
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Deductibles. Deductibles can range from $500 to $10,000, though they may also be percentage-based, such as 2% or 5% of your coverage value. Further, you may find that specific claims, like those for wind damage, have different deductibles. Understanding policy deductibles can help you assess potential out-of-pocket expenses after a claim.
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Review discounts. Ensure your quote reflects each discount you’re eligible for.
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Review policy endorsements. Your quote should include any policy add-ons you’ve selected. Options often include sinkhole coverage, water backup coverage, flood insurance, extended dwelling coverage, and extended replacement coverage.
#7: Finalize your purchase and review coverage
After you’re satisfied with your selected coverage, you can purchase your policy.
If you’re financing the purchase of a new home
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Buy home insurance well before closing, as your lender will likely require proof of coverage at closing.
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You may need to pay in advance for a full year of coverage, though the payment is often included in closing costs.
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Lenders often require homeowners to have an escrow account as part of the lending agreement. If you need an escrow account, your lender will factor your home insurance costs into your monthly mortgage payment.
If you’re switching insurers
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Make sure your new policy goes into effect no later than the day your existing policy is set to expire.
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If you have a mortgage and an escrow account, tell the lender you’re changing insurance companies so they can update payment details.
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If you don’t have an escrow account and plan to pay the insurer directly, review the available payment options. Standard options include annual, bi-annual, and quarterly payments, though some insurers may offer a monthly option.
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Take note of payment due dates and methods to ensure continuous coverage.
Once you finalize your purchase, your insurer will send you a policy declarations page. This is a short document—one to two pages—that outlines the most important parts of your policy, including coverages and limits, your annual premium, deductibles, insurance contact information, policy effective date, discounts, and endorsements.
Where to shop for homeowners insurance
Whether you’re purchasing coverage for the first time or changing your home insurance company, there are several ways to get started:
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Contact each insurer directly, either by phone or by visiting their website.
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Work with an independent agent or insurance broker who can get quotes from multiple insurers.
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Use an online insurance marketplace to get quotes from multiple insurers.
Getting quotes online is an easy and often quick way to shop for coverage, but it's a good idea to contact the insurer directly before purchasing a policy. They can answer any coverage questions you may have, highlight potential gaps in coverage, and ensure you’re getting all available discounts.