Ultimate Guide to Homeowners Insurance

Everything you need to know about insuring your home and what's included

Buying a home can be exciting and intimidating, as it’s often the largest purchase people make in their lifetimes. While it’s a good investment, it does present some risk.  Having homeowners insurance can alleviate some of that risk.

Your home and the property inside it could suffer damage from various causes such as a fire, lightning, a burglar or a wind storm. Furthermore, you may be held liable for accidents that occur on your property.

The Insurance Information Institute reported that in 2015, 5.9% of insured homes filed a claim. Because of these risks, homeowners insurance is required by mortgage lenders to protect their investment. Furthermore, it’s smart to keep it beyond any required period to protect your investment.

If something unfortunate does happen in which your home is damaged or you are at risk of being sued over an incident on your property, you will want the peace of mind that comes from knowing you are covered.  To ensure you get the coverage you need, it’s important to choose your homeowners insurance policy carefully.

Not sure where to start? Here’s what you need to know.

Compare home insurance coverage options

One of the most important factors in selecting a homeowners insurance policy is choosing one that offers the coverage you need. Each provider will have their own policies with different coverage options. Here are the main types you will find, according to the Consumer’s Guide to Home Insurance from the National Association of Insurance Commissioners (NAIC).

Dwelling coverage

Dwelling coverage protects you from damage to your house and any structures attached to your house. This can include damages to electrical wiring, plumbing, fixtures and air conditioning and heating systems.

Other structure coverage

This pays for any damage that occurs to structures on your property that are not attached to your home, for example, a tool shed, guest home, freestanding garage or fence.

Loss of use coverage

Loss of use coverage pays for living expenses while your home is being repaired. For example, if your house burns down and you have to rent a home for two months, loss of coverage would pay for the cost.

Personal property coverage

This covers for the loss or damage of your own personal items such as appliances, electronics, clothes or furniture. This can even cover items when they are not on your property.

Medical payment coverage

This coverage pays for any medical costs that result from people being hurt while on your property. This is also the coverage that would cover the instance of your pet injuring someone.

Personal liability coverage

Personal liability protects you from costs incurred if someone is to sue you and you are found legally responsible for their damages or injuries.

A note on perils: A peril is a common term in the insurance industry, which means a specific reason for a loss, such as a fire or theft. Some policies cover all perils, while others have exclusions. Be sure to check what perils are covered by insurance providers you are considering. Note that homeowners policies do not cover flood damage, so flood insurance will have to be provided through a separate policy. Additionally, damage because of earthquakes often requires a separate policy.

Be sure the provider you choose has all of the coverage that you need. You never want to be in a situation in which your home is damaged and you contact your homeowners insurance company only to find out you aren’t covered.

Check types of coverage available

Ensure when you are comparing one quote to another, that each is offering the same type of coverage.

  • The first type is called “actual cash value,” which means you will receive an amount that equals the value of your house and belongings, minus depreciation.
  • The second is called “replacement cost,” which gives you the actual cash value without subtracting depreciation.
  • The third is called “guaranteed replacement cost,” which covers whatever the cost is to rebuild your home, protecting you against inflation.

The more security you want in your coverage, the more expensive the plan will be. Be sure to check which type of coverage providers are offering.

Ask about coverage limits

Next, check the limits providers have in place on coverage. According to the NAIC, you typically choose the coverage amount for your dwelling, personal liability and medical payments but the limits on coverage such as other structures, personal property and loss of use can be percentages of your dwelling coverage limit.

Compare deductibles/premiums

Another important factor is how much of a deductible the provider requires you to pay before the policy covers your loss. Typically, the higher your deductible, the lower your premium, and vice versa. Each provider may offer various options for deductibles and premium payments, so be sure to ask what is available when comparing companies.

Check for discounts

Insurance companies may provide discounts that can equate to considerable savings. Check and see whether any are offered and factor them into your decision when choosing the best provider. According to the NAIC, common discounts are given for having such home features as smoke detectors, a burglar alarm, deadbolts on doors, security devices for windows, and a sprinkler system. Discounts also may be offered for purchasing other types of insurance through the same company, such as auto insurance in addition to homeowners insurance.

Vet companies for good service

The quality of service that a company provides will play a large factor in how satisfied you are with your insurance over time. When something happens to your home, you want the claim process to be stress-free, efficient and quick. For this reason, it’s important to check the reputation of companies you are considering.

Shop around to find the best homeowners insurance available

Premiums will vary by insurance provider, even though each may offer similar coverage and service, so it’s important to shop around. The good news is that you can find a wide range of companies online, which makes comparing them easy.

You should research providers and build a short list of your top picks. Then, identify how much coverage you need and what policy limits you want. Additionally, prepare to provide information about your house including the location, square footage, construction type, year it was built and any factors that may increase the cost of coverage.

Once you have all of this prepared, contact the companies on your list and get quotes. To ensure you can fairly compare them, be sure to provide each potential insurer with the exact same information, ask for the same coverage and limits and find out about any discounts available.

Once you have the rate quotes and key information in writing,  you can review your offers and choose the best insurance for your unique situation.

Top recommended homeowners insurance companies

To help get you started, we have reviewed dozens of home insurance providers and these are our top three picks.

Liberty Mutual is a company that has been in the insurance business since 1912. It has more than $125 billion in assets and provides coverage worldwide. Insurance types offered include life, auto and property.  We recommend this company because of its high financial ratings, A+ rating from the BBB and reputation for customizable solutions and great service.

Esurance is an online-based company, which is part of Allstate, with more than 80 years of experience and $130 billion in assets. It offers insurance for renters, homeowners and automobile owners and has also received an A+ rating from the Better Business Bureau. This company is known for its efficient online experience, which simplifies the process of getting insurance.

Nationwide is a company that provides property insurance as well as property loans, credit cards, retirement plans and savings accounts. It has been in business since 1925 and has $197 billion in assets. With A+ ratings from various organizations including the Better Business Bureau, Nationwide has a reputation as a trusted provider that offers competitive rates.

Compare these companies and more on our home insurance review page so you can find the best homeowners insurance to protect your investment.