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The right home insurance policy can protect you and your new home from the financial impact of fires, storms, theft and more. But there are a lot of options to choose from when building your first policy.
Do I need home insurance?
You aren’t legally required to have home insurance, but if you have a mortgage, your lender may require it. And regardless of whether or not you’re contractually obligated to insure your home, you should.
Your home is likely the most valuable asset you’ll ever own. Everything contained within its four walls, including your furniture, clothing, electrical items and all your most-treasured possessions, are also worth a lot of money. So if disaster struck and your home and everything in it was completely destroyed, the financial consequences would be catastrophic.
The right insurance policy can offer the protection you need to rebuild your home, buy new furnishings and get your life back on track after a disaster.
What does home insurance cover?
Home insurance is made up of several different coverage types. The two most important parts of your policy are your dwelling coverage and your personal property coverage.
Dwelling coverage
This covers the actual structure of your home. It can provide protection against loss or damage caused by a covered event.
When choosing a policy, you’ll have two types of dwelling coverage to choose from:
- Replacement cost. This type of policy will cover all the costs required to restore your home to the state it was in before the covered event. This is the most comprehensive coverage, but also the most expensive.
- Market value. This type of policy pays the current market value of your home if it’s destroyed. It’s often more affordable, but can offer less coverage. For example, if you buy and insure a home for $200,000 while the market is down and it’s destroyed, you may find out that it would cost $250,000 to rebuild it after a fire — and your insurer won’t pay the difference.
Personal property coverage
This covers the cost of repairing or replacing your belongings if they’re stolen or damaged due to a covered event.
When choosing a policy, you’ll have two types of personal property coverage to choose from:
- Replacement cost. This type of policy covers the cost of replacing your stolen or damaged belongings with new, equivalent items. For example, if your three-year-old laptop was destroyed in a fire, your insurer would pay out the current cost of a new laptop with similar specifications. This is the most comprehensive coverage, but also the most expensive.
- Actual cash value. This type of policy covers your belongings up to their current market value, factoring in depreciation. For example, if your three-year-old laptop was destroyed in a fire, your insurer would pay out the current going rate for a three-year-old used laptop with similar specifications.
What is a covered event?
What events are covered depends on what type of insurance policy you have. Both HO-1 and HO-2 policies are known-peril policies, which means that you’re covered for the specific events named in your policy. If your home or belongings are damaged from an event not specifically named in your policy, it won’t be covered.
HO-3 policies are the most comprehensive, and are open-perils policies. This means that your HO-3 policy would cover everything except exclusions explicitly listed in the policy.
When you’re comparing homeowners insurance policies, take into account what is or isn’t considered a covered event, and talk with the insurer if you’re not sure about whether or not something would be covered.
Compare home insurers for first-time homebuyers
How much home insurance do I need?
The amount of coverage you need for the structure of your home will depend on its current appraised value. It’s generally recommended to insure your home for at least 100% of its value.
The amount of coverage you need for your belongings depends on what you own and how valuable it is. Take the time to inventory your belongings room by room, writing down what each piece of furniture, electronics or other items would cost to replace. Home inventory apps like Sortly and Magic Home Inventory can help make the process run smoothly.
If you need additional coverage for jewelry or other expensive items, talk with your insurer about adding valuable personal property insurance, also known as scheduled personal property insurance, for each individual piece.
How do I buy home insurance?
The most common way to buy home insurance is to compare insurers online and purchase a policy directly from an insurer. You can also buy coverage over the phone or even in person if your chosen insurer runs retail locations, but it’s usually cheaper to purchase your policy online.
When should I buy home insurance?
Most mortgage lenders will require you to purchase home insurance before you’re able to get a mortgage and close on the house.
How much does home insurance cost?
The average cost of homeowners insurance was $1,192 in 2016, according to the Insurance Information Institute. Averages range from $659 in Oregon to $1,918 in Florida. But you could end up paying significantly more or less, depending on:
- Where you live. Does your area have a high crime rate or is it prone to extreme weather? If so, this will increase your premiums.
- The value of your policy. A more expensive home will cost more to insure. Choosing a high coverage limit for your personal property will also result in higher premiums.
- Your deductible. By choosing a higher deductible you’ll pay lower premiums, and vice versa.
- Your home’s construction. The age of your home and the materials used in its construction can affect your home insurance premium. For example, homes with impact-resistant roofing often cost less to insure.
- Whether you select additional options. If you want to add optional coverage to your policy, such as coverage for jewelry or bringing the home up to code after a disaster, you’ll pay more.
- Your claims history. If you’ve previously made home insurance claims, this can impact your future premiums.
How can I save money on home insurance?
To get the best deal on your policy:
- Buy online. Many insurers offer online discounts.
- Choose a higher deductible. Agreeing to a higher deductible can help you save on premiums, but it’ll also mean paying more out of pocket after a covered event.
- Install a security system. A monitored security system can reduce the risk of theft and lower your insurance premiums.
- Look for discounts. Some insurers offer discounted coverage to long-time customers, customers with multiple insurance policies, homeowners over a certain age, and more.
- Shop around. The simplest way to get a good deal is to get quotes from several insurers.
Bottom line
Home insurance is an essential expense for every new homeowner, but it doesn’t have to break the bank. By comparing home insurers and taking advantage of discounts and deals, you can get the coverage your new home needs at an affordable price.
Frequently asked questions about insuring your first home
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