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When shopping for homeowners insurance, you'll need to consider the total replacement cost of your house, the types of perils your home is most likely to encounter and the monthly insurance premiums you can afford to pay.
Once you have an idea of how much insurance you need, compare quotes from a few different insurance companies to determine which has the cheapest rates. It's best to find a company that offers a balance of affordable rates, protective features and great customer service.
How to shop for home insurance
Once you have an idea of how much insurance you need, compare quotes from multiple companies to find the best rates and coverage offerings.
Most homeowners insurance companies make it easy to get quotes online. If you provide basic details about you and your house, they'll generate rates based on that information and data from other policies in your area.
We recommend getting a quote from at least three different insurance companies in your state to compare the policies and rates they offer. Additionally, you may want to ask friends, family and neighbors about their insurance provider and how satisfied they are with the coverage and customer service they receive.
To get a quote, you may need to provide:
- Your name
- Your Social Security number
- Your address
- Your house's square footage
- The renovation history of your house
- The current condition of your appliances and amenities
- An estimate of the value of your personal belongings
- Whether you own a particular breed of dog
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If you think the rate quotes are more than you can afford, review what's included in the policy. You might be able to choose a higher deductible in exchange for lower monthly premiums, or you may qualify for a discount if you have security features you didn't disclose in your quote request.
Additionally, many companies offer discounts for customers who bundle their insurance policies. If you already carry an car insurance policy, ask your insurance agent if they'll offer you a discount for adding a home insurance policy. Their quote may be comparable or cheaper than quotes from other insurers.
How much homeowners insurance do I need?
When shopping for home insurance, you'll need to determine the types of coverage and policy limits you need to buy in order to protect your property. The necessary coverage will vary based on the location and risks associated with individual homes, so you'll need to evaluate your own property and location to determine what coverage you should buy.
How to determine the types of coverage you should buy
Generally, home insurance policies are broken down into four categories of coverage:
- Dwelling coverage covers the structure of your home, including attached structures (such as garages) and built-in appliances (such as water heaters).
- Personal property coverage pertains to your personal possessions, such as clothing and furniture.
- Liability coverage protects you against potential lawsuits if someone is injured on your property.
- Additional living expenses (ALE) coverage pays for the costs of temporary rehousing if your home becomes uninhabitable due to covered damage.
You should expect to find these coverage types on your home insurance policy. Each of them provides coverage for a standard list of perils, such as theft, fire and wind damage.
Certain perils, such as earthquakes and floods, are excluded from standard policies, and still other hazards, such as tornadoes, may be excluded based on how much risk they pose to your region.
If you live in a region of California prone to wildfires, your insurance company may limit fire coverage in order to manage their risk. Similarly, if you live in Louisiana, the premiums for your separate flood insurance policy would likely be substantially higher than those of a house in Arizona.
Finally, you'll need to determine whether your house has suffered past damage that's likely to lead to future claims. If you're buying a home, consider running a Comprehensive Loss Underwriting Exchange (CLUE) report, which would provide the insurance claims history of the house.
A CLUE report is one of the factors insurance companies consider when determining your rates. If you run the report yourself, you'll be able to tell if the house has a track record of leaks, mold or other damage before you buy.
How to choose your coverage limits
When choosing your homeowners policy limits, you'll want to purchase as much coverage as you can afford up to the replacement cost of your property if it's totally destroyed in a disaster. This number is different from its resale value, which includes the value of the land. Rather, your home's replacement cost is the value it would cost to repair your home exactly as it is.
If your home hasn't been evaluated in a long time, or if you're closing on a new house, you may choose to have an appraisal done. This appraisal will help you determine how much coverage is necessary to appropriately insure your home.
The first policy limit you should consider is that of your dwelling coverage. Typically, your dwelling coverage will be subject to one of three policy limits.
- Actual cash value (ACV): Policies limited by your house's actual cash value are the cheapest option when buying home insurance. The ACV of your home is the market value of your house, less depreciation. For example, elements of your house, such as the flooring and roof, depreciate in value over time. So if your home is totally destroyed, ACV coverage likely won't cover the entire cost to rebuild your house, and you could end up responsible for a considerable amount of the replacement cost.
- Replacement cost value (RCV): Policies that insure the replacement cost value of your home will have higher premiums than one that guarantees the actual cost. However, the RCV reflects the cost to rebuild your home today, without considering depreciation, so it could provide a substantial amount of additional coverage if your home is totally destroyed.
- Guaranteed replacement cost (GRC) / Extended replacement cost (ERC): A GRC/ERC policy is your most expensive option. However, these policies guarantee reimbursement for a certain percentage above your home's replacement cost, should price inflation occur after a regional disaster. If many homes in one region are destroyed due to a wildfire, for instance, the cost of labor and materials may significantly increase, driving up the cost to replace your home. In such a case, a policy that insures the GRC/ERC of your home will provide the most coverage.
Personal property coverage
Next, you should determine how much personal property insurance you need. To do this, consider the total value of all of the property in your home. We recommend creating a written inventory of all of your belongings, including:
- Electronics (such as computers, televisions and speakers)
- Kitchen appliances
Calculate the total value of your personal property, and submit the written inventory of your things to your homeowners insurance agent.
This list gives you and your agent an idea of how much property coverage you need and establishes a record of your property before you file any claims. If your personal property is destroyed in a covered event, your insurance company will already have a list documenting your belongings and their values.
However, certain items may not be totally covered. Your vehicle is not insured by your homeowners insurance policy, even if it's parked in your garage. If your car is damaged by a nondriving disaster in your home, it would be covered by your comprehensive auto insurance policy, if you have one. Additionally, luxury items such as jewelry and art pieces are subject to low policy limits — typically around $2,000. If the total value of such items is higher than this limit, you'll need to purchase an optional rider to increase coverage.
To determine how much liability insurance you need, you should calculate the value of your assets that could be lost if someone files a lawsuit against you. Then, consider whether you engage in risky behavior.
Based on your location and total wealth, you may be able to cover:
- Business assets
- Real estate besides your primary home
- Future wages
- Money in bank accounts
- Personal property
Money stored in retirement accounts, such as an IRA or 401(k), are protected from lawsuits up to certain limits.
Calculate the total amount of your at-risk assets by determining your total net worth, minus any assets you know are protected in your state. Generally, if you have more than $100,000, you should consider purchasing an optional umbrella policy to provide supplemental coverage, especially if you frequently participate in high-liability activities.
Loss of use coverage
Loss of use coverage, sometimes called additional living expenses (ALE), is usually subject to a non-negotiable limit. Most insurance companies set the maximum ALE coverage to 30% of the dwelling coverage amount. If you own a condo, your ALE coverage may be increased up to 50% of your dwelling limit.
Do I need homeowners insurance?
We strongly advise buying home insurance coverage because your house is one of the largest financial assets you'll ever own, and it holds most (if not all) of your personal property.
Furthermore, any lawsuit that could be filed against you for an injury that takes place on your property could easily exceed the entire value of your house. Encountering one of these disasters without adequate home insurance coverage could be financially ruinous.
Your mortgage lender, condo association or co-op association may require homeowners insurance. If you don't purchase coverage or if your policy lapses, your lender will assign an insurer to you. These arrangements are much more expensive than the price of a regular policy.
Is home insurance required by mortgage lenders?
Most mortgage lenders require homeowners to carry a minimum amount of home insurance coverage. The lender is at risk of losing the home to a disaster or lawsuit as long as they have a financial stake in it.
You should apply for a home insurance policy at least one week before your closing date. The lender may pay your homeowners insurance premiums on your behalf and incorporate the cost into your monthly mortgage payments. If this is required by your mortgage lender, then you'll open an escrow account when you sign for your mortgage, and your monthly payments will go there before distribution.
After you've paid off your mortgage, your home insurance policy may no longer be required. However, we advise keeping your policy. If it's been years since you filed a claim or if you've never filed a claim at all, you may feel like home insurance premiums are wasted money. However, all of that time also represents wear and tear on your home.
You can't predict when you'll need to file a claim, but when you do, you'll be happy you're covered. Instead of dropping your coverage, ask your insurance agent if they'll offer you a discount for a history of no claims. Or if you feel you're paying too much for your coverage, shop around and compare quotes from other insurance companies until you find a policy that meets your needs.
Is home insurance required by condo or co-op associations?
If you own a condominium or buy into a co-op, you may be required to carry homeowners insurance because you live in such close proximity to other homeowners. A typical policy for this scenario is an HO-6 policy. Requirements will depend on what is already covered by your association's master policy. Generally, master policies fall into one of two types:
Master policy type
|All-in (all inclusive)||All internal and external surfaces of your condo are covered under the master policy, including attached fixtures, such as toilets and sinks. Additional upgrades may or may not be covered under this policy. Under an all-in policy, you're responsible only for insuring your personal property, such as clothing and furniture.|
|Bare walls-in||The master policy only covers the exterior of your condo. Everything inside your dwelling, including your walls, needs to be covered under your dwelling insurance.|
Contact your condo or co-op association to determine what elements of your dwelling you're responsible to insure. Once you have that list, send it to your insurance agent and verify that only these elements are included on your home insurance policy.