How to Find the Best Insurance for First-Time Homebuyers

How to Find the Best Insurance for First-Time Homebuyers

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Most first-time homebuyers are required by their mortgage company to have insurance in place before closing on their new home. It's important to start shopping as soon as you have a ratified contract so that you have enough time to compare quotes from at least three different companies.

How much insurance you need is based on the home you're buying and the value of your belongings, along with a number of other factors. It's important that you understand the amount of coverage you need before you compile quotes so that you can make direct comparisons and choose the best policy for you.

Do first-time homebuyers need homeowners insurance?

If you are taking out a mortgage, like most first-time homebuyers do, you will probably need homeowners insurance before you close on your new home. That's because mortgage companies require borrowers to purchase homeowners insurance to protect their investment in your home.

If you’re not relying on traditional financing, you won’t need to provide proof of insurance, but that doesn’t mean you shouldn’t have it. A homeowners insurance policy will ensure that you don't incur significant costs if something happens to your home or belongings, or if a visiting friend or family member is injured on your property.

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How soon before closing should I get homeowners insurance?

Most lenders will require you to provide proof of insurance in the form of a binder at least three days prior to closing on your new home. A binder is a legal agreement from your insurance company promising to insure your new home as soon as you close.

Insurance binders last 30-90 days, which means that you can get your policy in place much earlier than the three-day deadline.

Make sure that your binder doesn't expire until after your closing date, when the insurance company will issue you a permanent policy. If your binder does expire, request an updated one from your agent.

Insurance coverage for first-time homebuyers

When you’re buying homeowners insurance for the first time, it’s important to familiarize yourself with the coverage that your policy will provide. Here are a few of the ways that homeowners insurance protects you:

  • Dwelling coverage protects your home's structure from perils such as fire, theft and vandalism.
  • Personal property coverage protects your belongings, including furniture, jewelry and electronics.
  • Other structures coverage protects buildings on your property like a detached garage, shed or pool house, which are called outbuildings.
  • Personal liability coverage protects you as a homeowner against lawsuits for property damage or bodily injury that you are held responsible for.
  • Medical payments coverage will pay the medical bills of a guest or worker who is injured in your home.
  • Additional living expenses coverage will reimburse you for the cost of having to stay in a hotel or rental home while your home is being repaired.
Additionally, depending on the type of insurance you have, your policy may include a list of covered perils, like fire, theft and vandalism.

Knowing what’s not included in your policy is just as important. Some first-time homeowners may need to purchase supplemental insurance policies.

  • Many coastal homes require flood insurance to protect them from rising water due to storms. Even if your home is not in a flood zone, you may want to consider purchasing a policy since flooding is not covered on most homeowners insurance policies.
  • If your new home is near a fault line, or your area has a history of earthquakes, obtaining an earthquake insurance policy is an important consideration.
  • High-value personal property, such as expensive jewelry, artwork and electronics, may not be covered by the limits set in a standard insurance policy. To protect these items, we recommend adding additional coverage in the form of scheduled personal property coverage. You'll need to provide proof of purchase or appraisals to establish the value of your belongings.
  • The cost of performing regular home maintenance or replacing major appliances can be overwhelming for first-time homebuyers. Home warranty policies cover your appliances, heating and cooling systems, plumbing and electrical maintenance and more for a small service fee.

How much homeowners insurance do I need?

The amount of insurance that you need is specific to you and your new home. Here are the most important things to look for in your home insurance policy:

Dwelling insurance

The purpose of dwelling insurance is to cover the cost of rebuilding your house in the event of a total loss. It is not the same as the purchase price of your new home. Your lender will require a minimum amount of coverage. However, it's important to research local building costs to estimate the replacement cost of your home.

Personal property insurance

Personal property is usually insured for 20% to 50% of the dwelling coverage, so take inventory of your belongings to make sure that your policy offers enough coverage to replace your furniture, clothing and other valuables. You’ll also want to pay attention to whether your policy provides replacement cost or actual cash value for your items. With replacement cost, the insurance company will help you replace your items with new ones, whereas actual cash value considers what your items were worth at the time of the loss event.

Other structures

Other structures coverage applies to any buildings on your property that are not attached to your home, like sheds or detached garages. Make sure that the amount listed in your policy is sufficient to rebuild these structures if you have them.

Liability insurance

To determine the appropriate liability and medical limits for your policy, consider the potential hazards that your new home presents, like a pool or trampoline. If you entertain frequently or have a dog, we recommend higher liability and medical limits to protect yourself and your guests.

Additional living expenses

Additional living expenses coverage can be used to cover the cost of a hotel or rental house while your home is being repaired, so consider the cost of temporary living arrangements in your area. Take into consideration the requirements of your family — some homeowners can make do with a small hotel room while home repairs are being made, but a family with work-from-home parents would likely require a larger rental home.

How to shop for homeowners insurance

After you decide how much insurance you need, you can start your search for the best home insurance for first-time homebuyers.

Step 1: Compile a list of companies that offer homeowners insurance in your area

Your realtor will be able to refer you to a few agents that they know and trust. Remember that these are people that they have a standing relationship with, and they may not be the right fit for you and your new home.

Search online to find the best homeowners insurance companies in your area, and ask for recommendations from family members and friends. Additionally, if you already have a renters or auto insurance policy, check to see if your current company offers homeowners insurance. Since you are already a customer, you should be familiar with its customer service and possibly even its claims process.

Step 2: Research ratings

Resources like J.D. Power and the National Association of Insurance Commissioners (NAIC) complaint index will give you insight into how different insurance companies perform when customers have to file a claim. This can help you avoid dealing with payout difficulties when you need to use your policy.

In addition, insurance companies receive financial stability ratings, which evaluate how well they can weather significant catastrophic losses that affect a large number of their clients. Visit AM Best, Demotech, Standard and Poor’s, Moody’s and Fitch, and narrow your list to companies that have an A rating or higher.

Step 3: Compile quotes

Next, reach out to your top choices to find out how much homeowners insurance policies cost with each. Before you pick up the phone, make sure that you have the following information handy:

  • Personal information, such as your Social Security number and driver's license
  • Property address
  • Construction details including square footage, the age of the roof and building materials
  • Safety features, like sprinklers and alarm systems
  • The type and amount of coverage you need

Many insurance companies offer discounts and savings opportunities, even for first-time homebuyers. Some of the most common discounts are:

  • Multipolicy discounts for bundling home and auto insurance
  • Safety feature discounts for smoke alarms and sprinkler systems
  • Security discounts for a monitored alarm system or lightning protection system
  • Roof discounts for impact-resistant materials or newer roofs
  • Affiliate discounts for belonging to an alumni association or professional organization

Step 4: Compare rates

Once you have all of the quotes, it’s time to compare them. When you’re buying homeowners insurance for the first time, it’s important to remember that the cheapest policy isn’t always the best policy. Make sure that each quote has sufficient coverage to meet your needs.

How much should homeowners insurance cost?

It can be hard for first-time homebuyers to know how much home insurance should cost. On average, homeowners insurance costs $1,445 a year. However, prices vary from state to state. Using thousands of homeowners insurance quotes, we calculated the average annual premium for each state. The following table shows our findings, from the most expensive to the most affordable states for home insurance.

Cost rank
State
Average insurance cost
1Oklahoma$2,559
2Kansas$2,461
3Texas$2,451
4South Dakota$2,364
5South Carolina$2,321
6Minnesota$1,952
7Montana$1,939
8Missouri$1,914
9North Dakota$1,901
10Alabama$1,850
11California$1,826
12Colorado$1,813
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Individual state averages are based on the median home value in each state, which we used as an approximation of the cost to rebuild the home.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.