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How to shop for homeowners insurance
Buying a home is exciting, but it's also daunting -- it may be the largest purchase you'll make in your lifetime. While buying a home is typically a good investment, it does present some risks. For example, your property could suffer damage from a fire, lightning, or wind storm. Or you could be held liable for an unfortunate accident that occurred on your property. Having homeowners insurance can alleviate some of these risks.
The Insurance Information Institute reported that in 2019, 5.1% of insured homes filed a claim. The average amount paid per claim is around $15,500. Because of these risks, mortgage lenders require homeowners insurance to protect their investment. Furthermore, it's wise to keep it beyond any required period to protect your investment.
If an unfortunate incident damages your home or puts you at risk of being sued, you will want the peace of mind that insurance brings. But to secure the coverage you need, you'll have to do some research.
Not sure where to start? Here's what you need to know.
How to shop for home insurance
Your home is your castle. And in many cases, it's your family's largest investment. As a result, home insurance is usually an easy sell – nearly everyone recognizes that it's a necessity. But you shouldn't let your emotional investment in your home sway you to pay too much or settle for coverage that fails to provide the protection you need. Here are some things you should consider when comparing home insurance policies.
Compare coverage options
Your first goal is to select an insurance policy that offers the coverage you need. Each provider offers different coverage options with their policies. This helps you tailor your coverage to reflect your individual needs.
Dwelling coverage protects you from damage to your house and any structures attached to your house. This includes damage to electrical wiring, plumbing, fixtures, air conditioning, and heating systems.
Other structure coverage
This pays for any damage incurred by structures on your property that aren't attached to your home. For example, structure coverage might cover damages to your tool shed, guest home, freestanding garage, or fence.
Loss of use coverage
Loss of use coverage pays for living expenses while you're repairing your home. 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. It even covers these 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. Medical payment coverage would also cover the instance of your pet injuring someone.
Personal liability coverage
Personal liability protects you from costs incurred when someone sues you and you are found responsible for their damages or injuries.
In this context, a "peril" 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 which perils are covered by insurance providers you're considering. Note that homeowners' policies do not cover flood damage, so if you want flood insurance, you'll need to pursue a separate policy. Similarly, earthquake damage usually requires a separate policy.
Be sure the provider you choose offers all of the coverage that you need. You never want to find out too late that your property damage isn't covered by your policy.
Check types of coverage available
When comparing one quote to another, ensure that each offers your desired coverage type.
What coverage types are available?
- "Actual cash value" means you will receive an amount that equals the value of your house and belongings, minus depreciation.
- "Replacement cost" gives you the actual cash value without subtracting depreciation.
- "Guaranteed replacement cost," covers the cost 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 your provider offers.
Ask about coverage limits
Next, check the limits providers have in place on coverage. You get to choose the coverage amount for your dwelling, personal liability, and medical payments. But the limits on coverage of other structures, personal property, and loss of use can be percentages of your dwelling coverage limit. Before committing to a provider, you should confirm that their limits will sufficiently cover your assets.
Another important consideration is the policy's deductible. The deductible is the figure that you have to pay before the policy covers your loss. The higher your deductible, the lower your monthly payments, and vice versa.
Each provider may offer different options for deductibles and premium payments, so be sure to find out what's available when comparing companies. Don't jump at the lowest monthly payment only to find out later that you have to pay thousands of dollars out of pocket.
Check for discounts and perks
While you want to obtain adequate coverage, there's nothing wrong with saving money. Policies that offer discounts for installing security systems and fire safety devices can translate to significant savings. You may also save money by bundling your home and auto insurance policies with the same company. Other policies provide cash back incentives or reductions in deductibles for each year that passes without filed claims – although you should never hesitate to file a legitimate claim simply to maintain a cashback incentive.
Many homeowners are shocked to learn – too late – that most home insurance policies do not cover earthquakes or flooding. Depending on where you live, supplemental flood insurance or earthquake coverage may be a wise investment. If you live on a farm or have a manufactured home, you should ensure that your policy will also cover the farm and mobile home.
It's difficult to imagine a worse scenario than discovering that the insurance policy you've been paying for all those years is worthless – because the company is insolvent. Performing due diligence before making an investment can provide peace of mind that the company providing insurance for your home is also financially sound. Ensure that your insurance company is properly licensed to operate in your state. You should also check out any reports or profiles on file with oversight agencies like the Better Business Bureau.
Prioritize good customer 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 and efficient. For this reason, it's important to check the reputation of companies you're considering.
Here are some things you should look out for:
- How long has the company been in business? How much it holds in assets? These features will ensure that it is stable and experienced.
- What kind of ratings has the company earned from experts? Check with the Better Business Bureau and JD Power and Associates' study on insurance providers to find out.
- What have real users said about their experiences? Check ratings and reviews from a wide range of providers on the SuperMoney home insurance review page.
Shop around to find the best policy 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 start by identifying how much coverage you need and what policy limits you want. Then, use those criteria to research providers and build a shortlist of your top picks. Additionally, be ready to provide information about your house. Be ready to cite the location, square footage, construction type, the year it was built, and any factors that may increase the cost of coverage.
Once you have all of this ready, contact the companies on your list and get quotes. Be sure to provide each potential insurer with the same information. Ask each contender for the same coverage and limits, and find out about any discounts they may offer.
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.
Ready to begin? You can compare user reviews and ratings of home insurance here.