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How to shop for home insurance

By Posted : July 21, 2020

How to shop for home insurance

Shopping for home insurance requires knowing what coverage you need, understanding your options and doing research so you can find the best coverage for the lowest rates for your particular needs.

The good news is you can do most or all of your home insurance shopping online. Let’s take a look at how you can get home insurance, what’s covered, how much you may need, how much it costs and other coverage you may want.

What does homeowners insurance cover

Home insurance policies are divided into four parts:

  • Structure
  • Personal belongings
  • Liability
  • Additional living expenses (ALE)

Here’s what’s usually covered under a standard homeowner’s insurance policy:

Homeowners coverage itemCoverage overviewTypical home insurance amountExclusions and notes
ALEPays the additional costs of living elsewhere if your home becomes unlivable because of a fire, storm or other insured event.Limits for ALE vary by company.If a home becomes unlivable due to neglect, ALE benefits may be denied.
ALE reimburses you for hotel bills, restaurant meals and other costs that exceed your ordinary living expenses until your home has been rebuilt or repaired.Many policies include ALE up to 20% of the coverage amount.
LandscapingCovered events include theft, fire, lightning, explosions and vandalism.Usually limited to 5% of the insurance on your building, up to about $500 per item.Plants aren’t generally covered for wind damage or disease.
Liability protectionThis pays for your legal defense and any court awards, in the event that you, your pets or other household members cause damage to others.Up to the limit of your policy.An injured party can submit medical bills directly to your insurer without filing a lawsuit.
This coverage goes wherever you do; it's not just for accidents on your property.Liability coverage amounts usually start at about $100,000. Your policy may also provide no-fault medical coverage if someone is injured in your home.
 (Standard no-fault covered amounts range from $1,000 to $5,000 under the Medical Payments portion of your policy.)
Personal belongingsYour "stuff," including furnishings, recreational equipment, clothing and appliances is insured if stolen or destroyed by a covered event.Most standard policies limit personal property reimbursement to between 50 and 70% of your dwelling coverage amount.Some policies provide up to $500 of coverage for unauthorized use of your credit cards.
Your property is also covered when off your premises, such as in a storage unit.Off-premises coverage may be limited to 10% of your total personal property insurance.
DwellingThis includes repairing damage to your home or rebuilding it when a covered event (fire, theft, vandalism, wind storms, frozen pipes or accidental damage) occurs.Outbuilding coverage is generally limited to 10% of the amount of insurance you have on the main residence.This coverage doesn’t extend to:
Most standard policies also cover outbuildings, such as detached garages, tool sheds or gazebos.● Damage caused by sewer backups, flood, earthquakes, termites, pets or other animals.
 ● Mold, mildew, dry and wet rot (unless the damage was caused by a covered event like a burst frozen water pipe).
 ●  War, nuclear accidents and explosions.

Home insurance covers your property, but insurers also expect you to perform regular maintenance on the property.

"Many homeowners find themselves in a tough situation because they don't realize that homeowners insurance does not cover damage associated with lack of routine maintenance,” says Clair Jones, home insurance and safety specialist with SafeWise.com. “Policyholders should be sure to do everything they can to keep their property safe, like testing smoke alarms and sensors, inspecting pipes regularly and checking roofing for leaks or sagging."

How much homeowners insurance do you need?

You’ll want to have enough insurance so you can get your home repaired or replaced if it’s damaged.

Most homes are underinsured -- about two out of every three homes in America are underinsured. The average underinsurance amount is about 22%, though some homes are underinsured by 60% or more, according to Nationwide.

Analytics firm CoreLogic found that about three in five American homes are insured for an average of 20% less than full value.

Mortgage lenders usually require standard coverage. However, that might not be enough. Lenders don’t worry about your personal property or shielding you against lawsuits, but those are coverage areas you must think about when getting home insurance.

How do you make sure you have enough home insurance coverage? Penny Gusner, senior consumer analyst for Insurance.com, recommends the following:

  • Enough dwelling coverage to match your home’s full replacement cost. Replacement cost is not market value. Instead, it’s how much you would need to build your current home and doesn’t take into account land value. You can figure out how to calculate home replacement cost by looking at building materials used for your home, using online calculators or you can hire an appraiser to do it for you. Discuss your replacement cost estimate with your insurance agent or insurer and confirm that you have coverage limits that are appropriate for your situation.
  • $300,000 in liability.
  • $5,000 in medical payments.

"One of the biggest misconceptions about homeowners insurance we find in our office is that people think they should insure their house for market value, i.e., what they would get if they sold it. The amount of insurance that should be purchased is what it will take to rebuild a home after a total loss,” says Kent Unruh of Unruh Insurance Agency, Inc., in Denver, PA.

You may also want additional types of coverage that aren’t part of home insurance. Here are other types of coverage:

Flood insurance

-- Flood insurance covers water damage that comes from outside of the home and makes contact with the ground, such as flash flooding. Homeowners insurance usually doesn’t cover that damage. You can buy flood insurance through the National Flood Insurance Program or private companies that work with the NFIP. Flood insurance isn’t just for people in flood zones. One-quarter of flood insurance claims come from outside of a high-risk flood zone. Rates are based on risk; the average flood insurance cost is $650 a year, but you may find cheaper policies if you don’t live in a flood zone. Maximum coverage for your structure is $250,000 and maximum coverage for your home's contents is $100,000.

Earthquake insurance

Homeowners in areas prone to earthquakes may want to get earthquake insurance. Standard home insurance usually excludes earthquakes. Earthquake policies have higher deductibles than regular home insurance, but they often cost less than $100 annually depending on your home’s risk.

Umbrella insurance

-- Umbrella insurance provides extra liability insurance. Home insurance policies often limit liability coverage to $500,000. If your home and assets exceed that amount, you’ll want to look into umbrella coverage. Umbrella insurance can provide expanded liability coverage of up to $5 million.

Home insurance protection for personal property

Your home insurance policy likely includes personal property coverage. It's typically pegged at 50% to 70% of your dwelling coverage amount.

This is sometimes referred to as "blanket" insurance because it confers different kinds of coverage on the same property. However, that blanket may leave you cold.

Standard-issue home insurance policies don’t cover all types of property. They may restrict payments for certain losses. For example, stolen jewelry reimbursement may be limited to $1,500 regardless of the item's replacement cost.

To avoid taking an unexpected loss on your more valuable or unusual items, consider "scheduling" them and adding special coverage. That means purchasing additional "specific" or "scheduled" homeowners coverage and providing a detailed inventory and an appraisal.

Your insurer must approve the appraised value before it will cover the item. If you make a claim in the future, the appraisal will be used to determine the extent of your loss.

Do you need specific coverage? Find out by making an inventory of your home and checking the coverage limits for your more expensive personal property.

How much does homeowners insurance cost

The average  U.S. homeowners premium is $2,305 per year for $300,000 dwelling and $300,000 liability with a $1,000 deductible, according to an analysis of rates from major insurers for nearly every ZIP code in the country.

However, your claims history and where you live can lead to higher or lower premiums.

The chart below shows the average annual home insurance cost for a policy with $300,000 dwelling with a $1,000 deductible and $300,00 liability.

Rank State Average rate $ more or less than $2,305 national average rate % difference from national average $2,305
1Oklahoma$4,445$2,14093%
2Kansas$3,931$1,62671%
3Florida$3,643$1,33858%
4Arkansas$3,439$1,13449%
5Texas$3,429$1,12449%
6Mississippi$3,340$1,03545%
7Louisiana$3,270$96542%
8South Dakota$3,172$86738%
9Nebraska$3,133$82836%
10Missouri$3,111$80635%
11Colorado$3,082$77734%
12Minnesota$3,010$70531%
13Alabama$2,981$67629%
14Kentucky$2,862$55724%
15Montana$2,809$50422%
16Tennessee$2,692$38717%
17South Carolina$2,678$37316%
18North Dakota$2,601$29613%
19Georgia$2,555$25011%
20Iowa$2,540$23510%
21West Virginia$2,486$1818%
22Indiana$2,423$1185%
23New Mexico$2,299$60%
24Illinois$2,201$104-5%
25Michigan$2,153$152-7%
26Rhode Island$2,125$180-8%
27Ohio$2,107$198-9%
28Wyoming$2,083$222-10%
29North Carolina$2,009$296-13%
30Arizona$1,976$329-14%
31Connecticut$1,961$344-15%
32Virginia$1,956$349-15%
33Massachusetts$1,920$385-17%
34Idaho$1,842$463-20%
35New York$1,840$465-20%
36Maine$1,833$472-20%
37Alaska$1,799$506-22%
38New Jersey$1,744$561-24%
39Wisconsis$1,732$573-25%
40Pennsylvania$1,720$585-25%
41Oregon$1,608$697-30%
42Delaware$1,521$784-34%
43Maryland$1,518$787-34%
44Washington$1,514$791-34%
45DC$1,488$817-35%
46Nevada$1,486$819-36%
47New Hampshire$1,455$850-37%
48Utah$1,378$927-40%
49Vermont$1,212$1,093-47%
50California$1,166$1,139-49%
51Hawaii$499$1,806-78%

7 Factors that affect home owners insurance rates

Your home's value and insurance claim history influence your homeowners insurance rate, but many other factors contribute to your insurance premium. Here are seven other factors:

  • Credit score. Most states allow insurers to use your credit score when setting price. Insurers say that a person’s credit is a way to see whether a consumer is more apt to file claims or not. If you don’t have a great credit score, you should shop around, get quotes from other companies and see if you can save.
  • Claims filed by the previous homeowner. Previous homeowners play a part in how much you’ll pay for insurance. It's something to ask about when you buy a home. Request the seller provide you a copy of their Comprehensive Loss Underwriting Exchange (CLUE) disclosure information.
  • Number and type of pets. Unless you live in a state that prohibits this practice, like Michigan and Pennsylvania, insurers may charge you more or turn you down if your pet's breed is on their restricted list. Be sure to explore "pet-friendly" insurance companies, which don't deny coverage based on your pets.
  • Garage size. Because larger garages contain more valuables, a home with a large garage could be more likely to be burglarized. More risk equals higher premiums.
  • Attractive nuisances. Pools and trampolines pose significant risks, especially to children. Their presence will likely increase your home insurance premiums.
  • Home business. If your business attracts clients to your home, you run a greater risk of being sued by your clients should they become injured on your premises.
  • Your location. Even if your claim history is perfect, trigger-happy neighbors can cause your rates to rise. Using the CLUE database, insurers can check out everyone near you and you may be tarred with the same brush. Other location-based factors include proximity to a fire hydrant/fire station and the incidence of natural disasters, such as forest fires.

Home insurance discounts

Home insurance discounts can decrease your rates. Here are home insurance discounts worth pursuing:

  • New construction. Newly-built homes save homeowners an average of more than 35%. That’s the biggest home insurance discount.
  • Bundling your home and auto policies. Homeowners save an average of 19% off their rates by bundling policies with the same company.
  • Construction type. Homes built with fire-resistive materials can save you 12% on average and masonry leads to a 6% discount on average.
  • Loyalty. Staying with the same insurer saves an average of 6%.
  • Roof upgrade. Roofs play a vital role in protecting a home and preventing claims. Home insurance companies give a nearly 5% discount on average for homes with new roofs.

Those are the five biggest discounts, but other smaller ones can add up, including paying in full, burglar alarms, plumbing upgrades and fire suppression systems. Make sure to ask insurers about which discounts they offer when you’re shopping around.

Shop for home insurance after a claim

Filing a home insurance claim can increase your rates.

The average homeowner makes a claim only about once a decade. Insurers may charge higher rates if you file more than one claim in a few years. On the flip side, insurers often give discounts to homeowners who don’t file claims.

Joe Graves, owner of the Nashville agency I Hate Buying Insurance, warns, "Every time you file a claim, no matter how small, think of it as a strike. With many carriers, after three strikes… you're out. Only consider filing claims that are truly going to be a significant financial burden to handle on your own."

Filing multiple claims can get you canceled. Getting insurance from another one won't be easy if that happens.

"Once you are 'non-renewed' by a carrier, you may have to buy home insurance from a non-standard carrier. Typically, the premiums are much higher. One homeowner went from $900-ish to over $3,000 a year because of filing too many claims,” Graves says.

 To add insult to injury, the coverage you get from these companies may be less comprehensive.

For this reason, many experts recommend taking a policy with the highest possible deductible because you won't want to file small claims anyway. Use the savings you get with lower premiums to pay for those smaller repairs.

If you file a claim, you may want to shop around the next time your policy is up. You may find a company that is more forgiving and won’t raise your rates because of the claim.

How to get homeowners insurance

You can compare home insurance quotes online from competing homeowners insurance companies.

You'll want to be sure the company you choose has a respected reputation for customer service and financially stable. One place to check is Insure.com’s annual Best Home Insurance Companies, which ranks top insurers.

Shopping for home insurance isn’t as fun as purchasing a giant TV. However, by doing your research and understanding what you need, you can find a home insurance policy that protects you, your family and your biggest investment -- your home. You might even find a policy that lets you save enough so you can also buy that giant TV.