Home buyers, especially first-time home buyers often don’t think about budgeting for homeowners insurance when looking for their dream home, but they should. Where you live can have an enormous impact on your home insurance rates. For example, homeowners near open space on the Gulf Coast are more exposed to extreme weather like hurricanes and insurance in these areas will usually cost more because of it. Home buyers should also be aware of local flood disclosures laws when buying a house in a flood zone. You’ll want to know if flood insurance is required for the property and whether the home has experienced any flood damage in the past.
Buyers should start looking for a home insurance provider as soon as they have a contract accepted to buy a home. Most mortgage companies require proof of insurance before closing. Homeowners should begin shopping around at least 30 days prior to closing — waiting until the last minute can delay the process.
Many first-time buyers will often go with whatever home insurance company their real estate agent recommends, but that isn’t the way to get the best price or necessarily the best coverage. Try these tips to make a wise decision about your homeowner’s insurance policy:
- Get some quotes or call us to shop around. Make sure you’re comparing apples to apples when assessing your options — some policies may offer substantially more coverage.
- Know what your policy does and doesn’t cover. Homeowners insurance protects against most common exposures like water damage, electrical fires and roof leaks, but maintenance issues like mold and pest infestations usually aren’t covered, according to Gatewood. You may need special coverage for items like fine art, a wine collection, or antiques that typically aren’t covered either.
- Check the insurance company’s rating. A rating is an independent assessment, usually by AM Best or Demotech, of the company’s financial standing and a good rating means the company can meet its claim obligations even after a widespread disaster.
- Pick a high enough deductible. When selecting an insurance policy, homeowners need to make sure they’re covered in the wake of a catastrophe that could fully wipe out their home and belongings, but to save money, buyers should choose as a high a deductible as they can afford. Buyers should make sure they budget for their deductible, in case they have a claim, and to have an emergency fund that also covers small repairs that cost less than the deductible.
- Add liability protection. Every homeowner should have at least $100,000 in personal liability coverage, enough to cover common claims like a slip and fall accident on the property. If you have a swimming pool or have a high net worth and could be a target for frivolous lawsuits, it may make sense to increase your liability coverage above that minimum.
- Don’t forget to buy enough loss of use coverage. Coverage for your living expenses, if you must relocate while your home is being repaired, is part of most standard homeowner insurance policies. It’s typically suggested that homeowners have about 20 percent of their dwelling coverage in loss of use (also known as additional living expenses) coverage.
- Check out additional protections. Depending on their location, homeowners need to make sure they have adequate coverage for severe weather disasters such as fires, hurricanes and floods, which sometimes require an additional policy. People in natural disaster catastrophe zones should also do all they can to protect their homes before disaster strikes, such as clearing brush from around their property, installing impact-resistant doors and windows and using noncombustible landscaping. In addition, insurance companies may give you a discount for making your home safer such as in Louisiana.
- Look for discounts. While there are common home insurance discounts, they aren’t standardized across the industry. Most companies offer at least a 5 percent discount for security systems. Water mitigation systems like automatic water shut-off valves and leak sensors can qualify for discounts, too.
When shopping for homeowners insurance, it’s crucial to compare similar policies for an accurate assessment and to understand what your policy covers and excludes. Check the insurance company’s financial rating through agencies like AM Best or Demotech to ensure they can meet claim obligations. Opt for a high deductible that you can afford to save money, but budget for it and maintain an emergency fund for smaller repairs. Include at least $100,000 in personal liability coverage and consider increasing this if you have specific risks like a swimming pool. Don’t skimp on ‘loss of use’ coverage, which should be about 20% of your dwelling coverage. Depending on your location, you may need additional policies for natural disasters like fires, hurricanes, or floods. Finally, look for discounts related to security systems or water mitigation systems to save on premiums.