Home insurance for new homeowners

Why do new homeowners need home insurance?

Homeowners insurance helps you protect a valuable asset, providing you with the peace of mind that you are financially secure in the face of potential damages. Your home is your most significant purchase and where you build your life. If it is damaged, the cost and emotional toll can be severe. 

If you have a mortgage, your lender will likely require homeowners insurance. Although the coverage required is typically only enough to cover the dwelling, you can add coverage and increase limits to be better protected. Your loan documents will list the exact insurance requirements.

Home insurance helps pay for damages from risks like hail, fire, vandalism or injuries you cause to someone else – also known as liability coverage. While it doesn’t cover every scenario, it does offer protection from most common occurrences.

Failing to have appropriate home insurance coverage can lead to significant financial repercussions. Fortunately, finding the best homeowners insurance for you is straightforward; it just requires a bit of research.

What homeowners insurance covers

Homeowners insurance covers a wide variety of risks. These include:

• Fire
• Weather-related events, like hail, wind and lightning
• Injuries to others on your property
• Replacing personal belongings in specific circumstances
• Vandalism

A standard HO-3 home insurance policy is what’s known as open perils or all perils. That means it covers anything that is not specifically excluded by the policy terms.

What is not covered by homeowners insurance?

Now that you know what homeowners insurance covers, it’s essential to understand what is not covered.

Home insurance doesn’t cover:

• Earthquakes
• Hurricanes
• Floods
• Termites and other infestations
• Water backups from sewers, drains, etc.

In many cases, coverage can be added as an endorsement. Flood insurance, however, is always a separate policy. 

Types of homeowners insurance coverage

Standard policies include five main types of home insurance coverage: 

1. Dwelling. Repairs or replacement of the home and attached structures, like the garage, are included for covered perils, which are specific events or situations for which the insurance policy will provide coverage. Coverage also includes damage to the wiring, plumbing, and HVAC systems.
2. Other structures. This includes any other structure, such as a detached garage, shed, or fence, on your property that is not attached to your house. 
3. Personal property coverage. Personal property includes furniture, collectibles, electronics, art, and other items not part of the house. If you have extremely valuable items, you may need to add a separate endorsement to your policy, providing extra coverage for specific items, such as jewelry or artwork.
4. Additional living expenses. ALE, also known as loss of use coverage, covers you if your home is damaged and you must live elsewhere while it's repaired. ALE coverage includes paying for hotel rooms and meals while you're displaced from your house.
5. Personal liability coverage. Liability coverage covers injuries or damages to others for which you are responsible, on or off your property. 

Donald Griffin, vice president of personal lines for the Property Casualty Insurers Association of America (PCIAA), recommends buying an excess liability or an umbrella policy that offers coverage of $1 million beyond your home insurance and car insurance policy coverage. These policies are relatively inexpensive, often costing $200 to $300 annually.

"You don't want to lose your home because you failed to buy an insurance policy," Griffin says.  

How much homeowners insurance do I need?

You must rebuild your home and replace your belongings if it is destroyed. You also need to make sure your home insurance coverages and limits can handle the worst.

These are the costs you are insuring, and recommended amounts:

• Dwelling coverage: Your dwelling coverage amount should be the calculated replacement cost of your home. You may want to add extended or guaranteed replacement cost coverage to protect against inflation. 
• Personal property coverage: This coverage is usually between 50% and 70% of the dwelling coverage. 
• Liability coverage: Most homeowners policies include $100,000 worth of liability coverage, but $300,000 is recommended. 
• Additional Living Expense coverage: ALE coverage is usually about 20% of the dwelling coverage.

When to get homeowners insurance when buying a house

Once you find a home and accept an offer, you should start looking for homeowners insurance. The insurer will need to know the home’s details, such as its address and age, to start a policy. 

Since your mortgage lender will probably require home insurance, having coverage in place and ready to start the day you sign your paperwork is essential. Keep in mind that the coverage required by your lender is minimal, but you can increase limits and add coverages to suit your needs as long as the minimum is met.

How much is homeowners insurance?

Each company uses its own formula for determining rates, so the cost of home insurance varies significantly.  

The national average rate for $300,000 in dwelling and liability coverage with a $1,000 deductible is $2,601. Your rates will depend on a wide variety of factors, including where you live and the size and construction of your home. Average home insurance rates by state vary widely, and the part of the state you live in matters, too.

The table below compares the average home insurance rates for major insurers.

Home insurance discounts for new home buyers 

Discounts are a key component in lowering insurance rates, and most insurers allow you to bundle discounts to get the best savings. Homeowners can get significant savings with discounts like:

• Bundling
• Loyalty
• Automatic payments
• Claims-free discounts
• Security systems
• Roof upgrades

Each insurer determines discounts and savings amounts, so compare discounts when looking for new coverage. 

How to estimate the value of your personal property

Personal property includes anything inside your dwelling, such as jewelry, electronics, guns, furniture, collectibles, artwork and sports equipment. To get the right coverage:

1. Take a home inventory and film or take pictures of your belongings. You don’t need to document large appliances, but everything else needs to be accounted for, including shoes, clothes, rugs and everything else you would have to replace in a total loss.
2. Think about how much it would cost to replace these things at today’s prices, and write down the estimated cost for each item. If you have receipts for any of your belongings, also take pictures of those. Take notes on when and where you bought your more valuable items, such as computers, cellphones, and TVs, and write down the model numbers.
3. Add up the cost to replace everything in your home. You’ll want to have enough coverage to pay for the replacements.
4. Consider any high-value items that might need additional coverage and ask about a scheduled personal property endorsement or floater to cover them. These include jewelry, art, and musical instruments.

How to choose the best home insurance for new homeowners

There are a lot of choices when it comes to home insurance. Many companies tout low rates and have catchy songs and fun logos, but you need to consider more than that to make the best choice.

The best home insurance company meets your needs, including affordable rates, coverage options and a solid reputation for service. Unfortunately, there isn’t a one-size-fits-all approach to insurance. One homeowner may value low rates above all else, while another wants the best customer service.

Research is the best way to find an insurer that fits. Although the right insurance company for you depends on personal factors, a good place to start is with our annual ranking of the best insurance companies, based on a consumer survey, third-party ratings and average rates.

Griffin reminds new homeowners that choosing a financially stable insurance company is essential. AM Best, for example, offers financial strength ratings, which show a company’s ability to pay claims.

"Remember," he says, "you are buying a promise from that insurance company that they will be around when you need to make a claim."

How to save on homeowners insurance as new buyers

Homeowners insurance can be expensive, but there are ways to keep rates as low as possible. Insurers use numerous factors to determine rates, but you can save money by understanding what goes into your premium.

Homeowners can save on insurance by examining their policy. For example, rates decrease with a higher deductible and lower coverage limits. Consider your deductible and coverages to see if you save more by tweaking your policy.

You can also save money by improving your credit score. Statistically, a lower credit score means you’re more likely to file a claim than pay for repairs yourself. Most states allow insurers to use credit scores when calculating insurance rates, so improving your credit score can lower your home insurance costs.

Understanding how your insurer calculates rates and making changes can save you significantly over your policy term.

And don’t forget to ask about all available discounts, including those discussed above.

How to get homeowners insurance when buying a house

Finding insurance is a straightforward process for most homeowners, but diving into the process can be challenging. Follow these steps:

1. Decide what coverages you need in what amounts. For example, if you live in a flood or earthquake area, you must add those coverages to your policy. Also, consider your budget when deciding on coverage. More coverage means higher insurance rates, but you must ensure you have enough coverage to repair or replace your home.
2. Next, start considering insurance companies. You might start with your car insurance company or recommendations from friends and family. Most insurers offer similar coverages and discounts, so it’s a matter of narrowing them down. When looking for coverage, it’s essential to compare multiple homeowners insurance quotes to find the lowest rates and the best coverage. 
3. Request quotes with the same coverage, deductibles, and discounts from each company. This will help ensure that you compare equivalent quotes and get the best deal. Note that each company will calculate the replacement cost of your home a little differently, so you can expect that number to differ.
4. Once you’ve collected the quotes, compare premiums, deductibles, and coverage levels side by side. If anything is unclear, don’t hesitate to ask the insurance company for clarification before you proceed.
5. Finally, pick a company and start the policy. You can usually pay your premiums directly or set up an escrow account to pay the insurance and property taxes.

Helpful home insurance tools and calculators

• Home insurance calculator
• Condo insurance calculator
• Renters insurance calculator
• When to file a home insurance claim