A Guide to Getting Insurance For Your Home

The “Sold” sign in the yard is a clear indicator that your dream of homeownership is about to become a reality. Now comes the essential step of protecting your family and this precious new asset with the proper insurance. In fact, all lenders will require you to have homeowners insurance at the time you close on a loan, and for the life of the loan. There are many factors to consider when buying a policy. Here’s a guide to get you started:

What Does Homeowners Insurance Cover?

Homeowners insurance serves three main purposes:

  1. Insure the value of the structure of the home itself and the land it’s built on. You want to have sufficient coverage to rebuild your home, at the replacement value, if it’s completely damaged or destroyed.
  2. Cover the value of the contents contained within your home, such as fixtures, appliances and your personal items and belongings, including furniture and clothing. Your protection should cover damage, loss and theft. Some policies may also cover items like lawn mowers or garden equipment on your property.
  3. Protect against personal liability if someone is injured on your property or there is an accident, such as a dog bite or a slip and fall.

Types of insurance:

There are various types of homeowners insurance offering varying levels of coverage. Two important policies to know are the HO-2 and HO-3. An HO-2 policy, also known as a broad form policy, falls under the “named perils” category. That means it only covers claims for the events listed on the policy. Named perils policies are typically less expensive because they provide limited coverage. A HO-3 policy, also known as a special form policy, is an “open peril” policy. It covers any event not specifically excluded in the policy. Some homeowners in certain parts of the United States may also have a HOB policy, which is like the HO-3, but also covers certain types of water damage.

Because the HO-3 is the most common type of policy, for the purposes of this article, we’ll assume this is the type you’re most likely to purchase for your home.

Do I Need Extra Coverage?

A typical homeowners insurance policy excludes damages from events such as:

  • Earthquake
  • Landslide or mudslide
  • Floods
  • Sewer back-up
  • War
  • Government action

You will need separate coverage for these events. And, if you have valuable art, jewelry or family heirlooms, consider looking into additional personal insurance specifically for these items as well. Many standard policies do not provide coverage for personal items.

How to Shop for an Insurance Policy

Homeowners insurance premiums are calculated based on a set of factors:

  • How much your home would cost to rebuild
  • Deductible amount
  • Age and condition of your home
  • Claims history in the neighborhood
  • The area’s fire protection rating
  • Potential dangers on the property, like a swimming pool or even certain breeds of dogs

The most important aspect of shopping for homeowners insurance is getting several different quotes, perhaps starting with one from your auto insurer. Many insurers offer “bundle” packages with discounts on homeowners insurance. Decide the level of coverage you need, and compare at least a handful of quotes to find the best value.

You can look online for apps or insurance shopping services that let you enter basic information and then use an algorithm to search for a list of premium estimates for you to compare.

Terms to Know:

Reading through an insurance policy can feel almost like learning another language. Get familiar with common terms so you understand what the policy covers:

  • Appraisal: An evaluation conducted by a person trained to assess damages and losses, and calculate how much falls under the insurer’s liability. Appraisals are an important step in the claims process.
  • Extended replacement coverage: This feature sets a policy’s maximum payout at a point higher than 100% of the insured value of your home.
  • Inflation guarantee: This feature on a homeowners policy makes sure your home’s insured value will keep pace with inflation.
  • Market value: The “going price” if you were to sell your home now. Insurance companies base coverage on appraised value, or what a bank or mortgage lender says the property is worth, rather than following market trends.
  • Peril: A damaging event that can happen to your home or property.

Cost-Saving Measures

Again, homeowners insurance is required if you take out a mortgage to buy your own home. Many banks and lenders won’t lend to you unless you’ll insure the property, and most will also require you to keep the policy until the loan is paid off. Avoid sticker shock by building and maintaining a good credit score, and by shopping around. Your state’s Department of Insurance is a great places to start. Some insurance companies will also offer a discount if you take safety measures, such as installing a security system to make your home safer from burglary.

Once you own a policy, you can also keep premiums lower by dealing with smaller issues yourself instead of always filing a claim. As a rule of thumb, if the damage would cost less than $1,500 to fix, you might be better off handling it without involving the insurance company.

Past that point, though, go ahead and call your insurance company if your home or property gets damaged, vandalized, or burglarized. Consumer Reports found that 57% of their survey respondents did not see an insurance price increase after filing a claim for less than $5,000. They also found that negotiating can pay off if you’re unhappy with the insurer’s appraisal of the damage. Respondents who challenged their claim got an extra $6,000 on average in the ultimate payout.

My Application Got Denied. Now What?

Some areas of the country are so prone to flooding, hurricanes, and other weather disasters that it can be difficult to find any private insurance company that will extend homeowners policies. If your application was denied, you have a few options at your disposal:

  1. Talk to the insurer. An agent may be able to offer suggestions if it’s a matter of improving the condition of your home, rather than the location.
  2. Talk to your neighbors: What solutions have other people living in the area found to get insurance?
  3. Investigate state-run plans. Florida and Louisiana have Citizens Property Insurance programs for homeowners who can’t find insurance elsewhere. Look up what is available in your state.
  4. If necessary, a Fair Access to Insurance Requirements (FAIR) plan can be your final safety net. This isn’t automatic or guaranteed insurance (you may need to adhere to certain requirements to help protect your home against damage), but FAIR plans may be an option for people struggling to find insurance anywhere else. Search for your state’s FAIR plan to learn details.

Insuring your house against perils gives you the security of knowing you can depend on having a roof over your head. Use this guide to find the best insurance fit for you, and enjoy relaxing at home!

Our Pre-Purchase Coaching and Home Buyer Education will help you become a successful homeowner.Our Pre-Purchase Coaching and Home Buyer Education will help you become a successful homeowner.

About The Author

Jessica Sillers writes about finance, small business, and parenting for various publications and websites. She loves helping people feel more confident about balancing money and life goals. When she's not writing, you can find her with her nose in a book, or at www.dcfreelancewriter.com.