When shopping for homeowners insurance, you'll need to consider the total replacement cost of your house, the risks inherent to your region and the monthly insurance premiums you can afford to pay. Once you have an idea of how much insurance you need to buy, compare quotes from a few different insurance companies to determine which has the cheapest rates.
How to Shop for Home Insurance
Most homeowners insurance companies offer quick and easy quotes online. If you provide them with some basic details about you and your house, and 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 in order 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
Find the Cheapest Homeowners Insurance Quotes in Your Area
If you think the rates you've been quoted are more than you can afford, review the factors insurance companies consider when determining your rates. You might be able to choose a higher deductible in exchange for lower monthly premiums, or you may qualify for a discount due to security features that 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 auto 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: to insure the structure of your home, including attached structures (such as garages) and built-in appliances (such as water heaters).
- Personal property coverage: to insure your personal possessions, such as clothing and electronics.
- Liability coverage: to protect you against lawsuits that may be filed against you if someone is injured on your property.
- Additional living expenses (ALE) coverage: to cover 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. However, certain perils, such as earthquakes or 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. For example, if you live in a region of California prone to wildfires, your insurance company may limit fire coverage in order to responsibly manage their risk. If that were the case, you might need to purchase additional fire insurance to provide coverage beyond the limit of your standard policy. 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.
Consult your region's FEMA flood map to determine if your home is located in a flood zone, and ask your neighbors, realtor, and insurance agent if there's a history of other perils, such as tornadoes, in your town.
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 CLUE insurance report, which would provide the insurance claims history of the house. A CLUE (Comprehensive Loss Underwriting Exchange) 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. If your home hasn't been valuated 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 ACV 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. If you need to replace your flooring five years after you bought your home, you won't be reimbursed for the value of your flooring as of the day you bought the house. Instead, you'll be reimbursed for its value after five years of wear and tear have been factored in, and you'll be responsible for the difference. This means that 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. Also keep this in mind when you consider how much ACV coverage you need: the ACV of your house typically excludes the value of your land, as land typically does not need to be rebuilt.
- Replacement Cost Value (RCV): Policies that insure the RCV of your home will have higher premiums than one that guarantees the ACV. However, the RCV reflects the actual cost to rebuild your home today, irrespective of depreciation, so it could provide a substantial amount of additional coverage if your home is totally destroyed. RCV policies are still subject to maximum limits that you could reach in the event of price inflation.
- 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 due to a regional disaster. For example, if many homes in one region are destroyed due to a wildfire, 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 televisions and speakers)
- Kitchen appliances
Calculate the total value of your personal property, and submit the written inventory to your homeowners insurance agent. This list will give you and your agent an idea of how much property coverage you need and will establish a record of your property before any claims are filed. 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, it's important to note that 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 non-driving disaster in your home, it would be covered by your comprehensive auto insurance policy, if you have one. Additionally, luxury items such as jewelry, furs and artwork 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.
In order to determine how much liability insurance you need, consider the value of all of your assets that could be lost if someone files a lawsuit against you. At-risk assets vary based on your location and total wealth, and these may include:
- Business assets
- Non-dwelling real estate
- 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.
Determine your total net worth, minus any assets you know are protected in your state, to arrive at the amount of liability coverage you need. If you find a standard home insurance policy's liability limit is lower than this amount, consider purchasing an optional umbrella policy to provide supplemental coverage.
Additional living expenses (ALE) coverage is usually subject to a non-negotiable limit. Most insurance companies set the maximum ALE coverage to 30% of the dwelling coverage amount. So, if your dwelling coverage limit is $250,000, your total ALE expenses could be up to $75,000. However, if you own a condo, your ALE coverage may be increased up to 50% of your dwelling limit.
Do I Need to Buy Homeowners Insurance?
Homeowners insurance is not federally required. However, we strongly advise homeowners to consider buying home insurance coverage. 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.
Although coverage isn't mandated by the U.S. government, your mortgage lender or condo or co-op association may require it.
Is Home Insurance Required by Mortgage Lenders?
For as long as they have a financial stake in your home, mortgage lenders carry a proportionate amount of risk of losing it to a disaster or lawsuit. To protect themselves and their investment, most mortgage lenders require homeowners to carry a minimum amount of home insurance coverage. In fact, you usually can't close on a home until you've provided your lender with proof of insurance. You should apply for a home insurance policy at least one week before your closing date.
Mortgage lenders 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 against dropping 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||Your Responsibilities|
|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.