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How To Shop For Home Insurance

Homeowner’s insurance pays to rebuild or repair your home after a fire or other covered peril. Lenders require homeowners insurance if you have a mortgage. But home insurance is optional if your house is paid off.

The benefits of homeowners insurance extend beyond repairing your home if disaster strikes. Most policies cover theft or damage to your property anywhere in the world. If you injure someone or damage their property you’re covered up to the policy limit even if it occurs away from home. Policies also cover medical costs for someone who is injured on your property.

When shopping for home insurance it’s important to find a policy that fits the budget. Also consider special circumstances such as living in an area prone to hurricanes or owning expensive jewelry

Identify Your Home Insurance Coverage Needs 

The first step in shopping for homeowners insurance is calculating how much coverage you’ll need.

Determine Your Home’s Replacement Cost

You should have enough insurance to rebuild your home if a disaster strikes. This is known as the replacement cost. If a fire destroys your home, the insurance company pays for the construction of a new home of the same size.

An insurance agent will estimate the replacement cost value of your home. Other options are to have an appraiser estimate the replacement cost or to calculate it based on average construction costs in your area. 

The replacement cost is not the same as a home’s market value. For one thing, your home’s value includes the price of the land. A home might be worth $400,000, but it might cost $300,000 to rebuild it.

Calculate the Value of Your Belongings

Homeowners insurance covers the repair or replacement of your personal property after a covered loss. So you’ll need to have an idea of what all of your clothing, furniture, electronics, etc, are worth.

Insurers estimate the value of your personal property as a percentage of your the home’s dwelling coverage. This is typically 50 to 70% of the coverage for the structure of your house. For example, if your house has $500,000 in coverage, and you have 50% coverage, the policy pays up to $250,000 for personal property.

To be sure you’re covered at the right level, take a home inventory of your possessions. Photograph belongings in each room and use home inventory apps to streamline the process. This information helps if you need to file a claim

If you live in an area with a high risk of hurricanes, earthquakes, wildfires or tornadoes, you’ll need additional coverage for those risks. 

Gather Your Home Information

When you shop for home insurance, you’ll need to collect information about your home to get an accurate quote. Insurers use this information to assess risk and calculate your price.

  • Your home’s square footage – The insurer uses this to calculate the replacement cost.
  • Year built –  Older homes are more costly to insure. 
  • Roofing materials and type of roof and exterior walls – Certain roof shapes, like hip roofs, withstand weather better and some roofing materials last longer.
  • Exterior wall material – Masonry walls are lower risk because they are impervious to the elements and noncombustible. A brick home might qualify for lower premiums than one with wood siding, which deteriorates over time and is flammable.
  • Primary or second home – Because they are often vacant, second homes are higher risk and require a different type of insurance than a primary residence. 
  • Pets, pools, trampolines – Features that increase the risk of a guest being injured, like a pool or a dog, can increase your premiums.
  • Renovations and updates –  Certain upgrades, such as a new roof, could reduce the cost of your insurance. Others, like kitchen or bathroom remodels, can increase the replacement cost of your home.
  • Detached structures – Standard homeowners policies only cover your main dwelling. You’ll need other structures coverage for garages, sheds or other buildings that are not attached to your house.
  • If you have wood stoves or fireplaces –  These can increase the risk of fire. 
  • Claims history – If you’ve filed a lot of claims, insurers will see you as higher risk which will increase your premiums. 

Shop and Compare 

To get the best deal on homeowners insurance, get 3 to 5 quotes and compare them side by side. Use an online insurance marketplace or get a quote from an insurer’s website. Consider the following:

  • Price – Of course, you want a reasonably priced policy, but the cheapest policy  might not be the best. 
  • Deductibles – Note which insurer has the lowest deductible. Keep in mind that a higher deductible means a lower premium
  • Coverage – Go over each line item and compare the amount of coverage for liability, personal property, replacing the dwelling, and so on.
  • Company reputation – Read consumer reviews and check with rating agencies about a company’s financial strength. 
  • Discounts –  Bundling home and auto insurance from the same company, being over 55 and retired or installing security features like fire alarms can net discounts. 

Sample Insurance Quotes

Company A
Company B
Annual premium
Repair/rebuild dwelling
Personal property
Personal liability
Temporary living expenses
$ 84,800
Actual losses sustained
Standard deductible
Wind/hail deductible

Comparing Insurance Quotes

These quotes provide a good lesson in how to choose homeowners insurance. In the example above, though they are close in price, Company B is the better option. It has a slightly higher repair/rebuild benefit. But it offers nearly $110,000 more in personal property coverage. That means if you lost everything in a fire, you’d have that much more money to replace all your furniture, clothing and so on. 

Similarly, Company A caps temporary living expenses at $84,800. This benefit covers the cost of food and temporary housing during home repairs after a disaster. Option B covers whatever losses you incur, which could be much more. 

Finally, look at the wind/hail deductible. Option A has a 1% deductible, which refers to a percentage of the total replacement benefit of $424,000. That means for wind or hail damage, your deductible is $4240. For Company B, your wind/hail deductible is $1500.

Select Your Home Insurance Policy

Once you’ve decided on the coverage you need, there are a few remaining decisions to make when shopping for homeowners insurance.

  • Coverage dates – You’ll need to set a date for when your new coverage begins and your old insurance ends. 
  • Deductible – this is the amount you pay on each insurance claim. With a higher deductible, you’ll have lower premiums.
  • Endorsements –  Insurance companies place limits on the reimbursement amount for personal property, such as $1,500 for jewelry specifically. If you have expensive jewelry or collectibles, you can add an endorsement. The item must be appraised, but the endorsement significantly increases your coverage. 
  • Premium payments – Lenders generally require premiums to be paid in full for the coming year when you close on your mortgage.

Mistakes To Avoid When Shopping For Home Insurance

It’s not uncommon for homeowners to sustain damage to their home only to realize that insurance won’t cover the problem. To save money and frustration, avoid these common mistakes.

  • Focusing only on cost – Instead, pay attention to coverage levels. In our comparison above, the slightly cheaper policy had far fewer benefits.
  • Being unaware of coverage limitations –  Standard homeowners policies don’t cover earthquakes, flooding or hurricanes. To cover these perils, you will need separate policies.
  • Not taking inventory –  Consumer surveys found that only 49% of homeowners have taken inventory of their belongings to document their loss for an insurance claim.
  • Failure to shop around – Compare prices each year to see if you can get better pricing through a credit union, employer or association. Also, let your insurer know if you’ve made changes that could lower your premium, like taking down your trampoline or installing new fire alarms.