How To Buy Homeowners Insurance in United States

Compared to all of the research, time, and energy that is put into purchasing a home, buying a homeowners insurance policy is too often almost an afterthought. However, homeowners insurance deserves more careful consideration because choosing the right policy can prevent financial ruin after a major disaster strikes.

This guide will take you step by step through what you need to know before shopping for a homeowners insurance policy. We’ll also help you determine whether you even need homeowners insurance and, if so, how much coverage to purchase. You’ll learn what is and isn’t covered by a basic policy, what add-ons are available, and what optional coverages you might want to consider.

Finally, you’ll learn how to choose the best homeowners insurance company and a policy that matches your needs and budget.

For more information on the ins and outs of homeowners insurance, see How Does Homeowners Insurance Work?

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(ANTONIOGUILLEM)

What Is Homeowners Insurance?
A home insurance policy provides coverage to repair or replace your home and its contents following damage caused by fire, smoke, water, theft, vandalism, a storm, or some other event named in the policy. These are called “perils.”

In addition to covering the structure and outbuildings, standard policies typically cover the repair or replacement of heating and cooling systems and their components, such as a furnace or water heater, if they are damaged by a covered event.

Homeowners insurance also covers in-home personal property that’s damaged, stolen, or destroyed. Finally, homeowners insurance pays for medical and legal expenses if someone other than you or your family is injured on your property.

Do I Need Homeowners Insurance?
If you own a home, you probably need homeowners insurance. In fact, if you plan to finance your home, the bank or mortgage lender will most likely require it. That’s because your lender will want to protect their investment in the event of a flood, fire, hurricane, or other catastrophic events. You don’t technically need homeowners insurance if you paid cash for your home or have paid off your mortgage, but it’s still a good idea to avoid getting in financial trouble if something happens to your home or possessions.

The same applies if you purchase a co-op, a condominium, or a mobile home. If you borrow money to make the purchase, your lender will likely require a policy no matter what type of home it is. Condominium or private community associations may also require homeowners insurance to cover common property and facilities, such as a shared roof, common walls, a tennis court, or a swimming pool.

Homeowners insurance is an excellent idea even if your mortgage is paid off, you paid cash, or you inherited your property without a mortgage. Most homeowners don’t have the funds available to rebuild or make substantial repairs if their home is heavily damaged or destroyed. A homeowners policy costs a lot less than rebuilding out of pocket.

Most standard policies also include coverage to help replace your furniture, clothing, and other possessions after a fire, storm, or other catastrophic circumstance.

What Does Homeowners Insurance Cover?
Homeowners insurance covers damages or losses to your home, personal belongings, or even individuals injured on your property. Here’s a breakdown of the standard coverage offered to a homeowners insurance policyholder:

Dwelling coverage applies to damage done to your home caused by fire smoke, theft, vandalism, or severe weather. Although damages from lightning, wind, and hail are typically covered, you will need to buy separate insurance for floods and earthquakes. Coverage extends to other detached structures on your property, like a garage, barn, or shed.
Personal property coverage insures your personal belongings, including furniture, appliances, electronics, and clothing. Reimbursement for lost or damaged belongings can either be for the full replacement value or the actual cash value of the item after depreciation. You may need to pay for higher premiums or purchase additional coverage for valuable belongings, like art and jewelry.
Personal liability coverage can help protect you if someone is injured on your property. If you are sued, your policy can help pay for your legal expenses and fees. If they are injured, it can also cover their medical expenses, including X-rays, ambulance rides, and hospital stays.
Living expenses coverage will help pay for expenses if you are displaced from your home as a result of a covered condition. This can include fire, tornado, or other immediate or imminent hazards because of which local authorities bar you from your neighborhood.
In addition to the standard coverage above, homeowners insurance companies usually offer add-ons to their policies or additional insurance to suit specific needs and can include the following:

Flood and earthquake insurance are offered as two separate policies and cover damages resulting from each respective event. Although not all insurers offer flood or earthquake insurance, you might be required to purchase one of these policies depending on where you live. FEMA publishes an interactive flood map on its website that can help you determine the risk of flood in your area.
Mobile or manufactured home coverage insures against damages done to a permanent structure. Many insurers offer separate homeowners policies designed specifically to cover mobile homes and manufactured (prefab) homes.
For more information, visit our What Does Homeowners Insurance Cover? page.

Where Do I Buy Homeowners Insurance?
Insurance company websites can help you get started when shopping for homeowners insurance, and most describe what is and isn’t covered and the options are available. However, it’s not always easy to find all the coverage specifics online. Homeowners insurance is a big purchase, and many insurance companies recommend consulting with a licensed insurance agent in your area who can help find the policy right for your needs.

If you do choose to use an agent, they can also help you find the price point right for you. Company and captive agents work exclusively with one company to help tailor a policy to your needs, while independent agents can obtain quotes from numerous companies to find you the best deal.

But if you choose to search for a policy on your own, many insurance websites have estimating tools that give you an idea of what your cost will be once you enter basic information about your home and its contents.

There are always ways to save on homeowners insurance, and they vary with whatever company or policy you choose. However, one of the most common ways to save is by bundling multiple policies, like home and auto insurance, with one company.

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Mistakes to Avoid When Buying Homeowners Insurance
Although it might be tempting to get a bare-bones policy to save money on premiums, this could come back to haunt you later. “Probably the biggest mistake that people make when buying homeowners insurance is to focus on price rather than coverage or quality,” says professor Jay Feinman, an insurance expert with Rutgers University Law School. “You need to understand the type of insurance you’re buying, what is covered, and what is not.”

To avoid unpleasant surprises, buy a policy sufficient to replace or rebuild your home and any outbuildings such as a garage, pool, or fence, as well as your home’s contents. That includes heating and cooling systems, furniture, clothing, and your other possessions. “Two-thirds of American homes are significantly underinsured,” Feinman says. “Try to get an accurate idea of what the actual costs would be to rebuild.” He noted that those costs can be higher in the wake of a major event. “When many people need to rebuild at once, costs go up dramatically,” he says.

It’s also important to read your policy carefully and understand exactly what is and is not covered. If coverage for something you’re concerned about isn’t specifically mentioned, such as damage from a falling tree, ask for a written statement clarifying the issue.

Last, but not least, periodically review your policy to continue to get the best rates. Home insurance companies tend to tack on rate increases each year for various reasons, such as inflation, increases in the value of your home, and other factors. They’re usually small enough adjustments that you don’t notice them but they can add up over time. Another insurance company may have an incentive to offer you a lower premium price to win your business.

You can also ask the company you’re currently with if they have a loyalty discount. Some companies will lower your premiums a certain percentage depending upon how long you stay with them.

How Much Does Homeowners Insurance Cost?
Home insurance costs can vary greatly depending on a variety of factors, including the age, size, and location of your home, and the likelihood of a major weather event in your area. Premiums average $100-$170 per month for the companies we rated.

“Where you live and the natural disasters afflicting that area are a big factor,” says Lynne McChristian, communications consultant at the Insurance Information Institute. In particular, living in an area prone to floods can make home insurance quite expensive. Homeowners insurance is also likely to cost more in areas with higher crime rates, higher rebuilding costs, or stricter building codes. And a home in an area with a volunteer fire department located miles away may cost more to insure than one with a nearby fire station staffed by professionals.

Other things that may affect homeowners insurance premiums include the age and condition of the roof, furnace, and other major home components. Security systems and fire alarms can lower premiums. The need for additional coverage to cover very valuable possessions can add to the cost of a standard premium. Finally, your monthly insurance premiums will probably be affected by the size of your deductible, or the amount you pay out of pocket if you file a claim. Generally, the higher the deductible, the lower your premiums will be.

Even if you already have homeowners insurance, it’s still a good idea to review your coverages and costs annually. Coverage needs change over time as the real estate market fluctuates and you make additional purchases. In addition, home insurance is a competitive business, and comparing rates every year could save you money even if you’re generally happy with your current insurer.