Buying a home is arguably the most important financial decision one can make in their lifetime. That’s why homeowners insurance (AKA home insurance) isn’t a luxury, it’s a necessity. We’ll walk you through the steps you need to take in order to obtain the right homeowners insurance policy for you.
Step 1: Understand your homeowners insurance needs
Before you start shopping around for your policy, it’s recommended to have an idea of how much coverage you need to ensure that your home and personal belongings are fully covered.
Most standard homeowners insurance policies contain the following components:
- Dwelling coverage – This limit should be equal to your home’s replacement cost, i.e. how much it would cost you to rebuild your home if it were to be destroyed. Providers will determine this figure based on things like square footage, number of bathrooms, and rebuild costs in your locale. You can always supplement this with a more accurate estimate by getting a replacement cost appraisal of your home.
- Personal property coverage – This limit is usually set as a percentage of your dwelling coverage limit (typically 50%-75%).
- Additional living expenses – If you live in an area that is prone to natural disasters, you may want to consider adding more coverage to your policy to cover relocation expenses in the event that you are displaced. This is called loss of use coverage, and it’s typically 20% of your dwelling coverage limit.
- Liability coverage – This protects you from costly litigation in the event you’re found legally responsible for someone’s injury or property damage. Insurance companies typically offer between $100,000-500,000 in protection. If you want to determine how much coverage you need, add up the value of all your assets (home, vehicle, investments, personal belongings, and future wages).
- Medical payments coverage – This is no-fault coverage for medical expenses if guests are injured on your property, usually between $1,000-5,000.
Step 2: Decide how you want to shop for homeowners insurance
As we’ve mentioned in previous articles, the best way to shop for any type of insurance is through an independent agent or broker. This method enables you to compare policies from multiple companies, and ensures that you’re able to find the best quote. Independent brokers are unbiased, so they can give you impartial advice regarding which policy is best suited for you.
Step 3: Gather the information you’ll need when you shop
The more information you have about your home, the more accurate your quote will be. If you’re looking to replace a policy you already have, this information will be available on your old policy.
Here is a breakdown of the information you might need to provide your agent with in order to obtain an accurate quote:
- Home address
- Insurance appraisal
- Prior insurance
- Prior insurance inspection reports
- Lender requirements
- List of who will be living in the home
- Whether or not you plan on renting out the home
- Whether you consider the home to be a primary or secondary residence
They’ll also need some personal information from you as well. This usually includes:
- Date of birth
- Social security number
- Previous addresses (if you haven’t lived in the insured home for at least 2 years)
- Liability questionnaire (pool, pets, trampolines, etc.)
Step 4: Compare quotes and select a policy
Once you’ve given your agent all of the required information, it’s time to get your quotes and choose a policy. Be sure to pour over all of your options and choose the one that best suits all of your needs. You’ll also want to research the insurance company’s reputation, and make sure they’re a financially stable company. Check reviews on sites like Better Business Bureau and Consumer Reports.
Step 5: Finalize the details
Now that you’ve compared quotes and selected a policy, it’s time to choose a billing plan and policy deductible. If you’re procuring homeowners insurance in order to close on a home, there are a few details you need to finalize first:
- Premiums – Typically lenders require that premiums be paid in full for the first year ahead of closing on the property.
- Deductible – This is the amount you pay before your claim for damages is covered.
- Effective date – Finally, you’ll choose your policy’s effective date when your coverage kicks in.
Once your dates are set and your lender approves your policy, it’s time to sign on the dotted line.
Step 6: Prepare for the insurance inspector
Your carrier will usually perform a property inspection to ensure that everything is in order and matches the information you reported. If anything is amiss, your inspector will take note and you’ll see it reflected in your next bill.
Step 7: Woo-hoo! (optional)
Kick back and relax! And give yourself a pat on the back for making it through this lengthy process.