Compared to all the research, time, and energy put into purchasing a home, buying a homeowners insurance policy is too often an afterthought. However, homeowners insurance deserves more careful consideration because choosing the right policy can prevent financial ruin after disaster strikes.
Here, we’ll explain what you need to know when shopping for a homeowners insurance policy, including what is and isn’t covered by a basic policy, what additional coverages are available, and how to buy a policy that matches your needs and budget.
How Much Does Homeowners Insurance Cost?
Home insurance costs can vary greatly depending on various factors, including the age, size, and location of your home, and the likelihood of a significant weather event in your area. However, premiums averaged between $100 and $170 per month out of the insurers we rated.
Several factors affect the cost of your homeowners insurance. “Where you live and the natural disasters afflicting that area are a big factor,” says Lynne McChristian, communications consultant at the Insurance Information Institute.
Other factors that can affect your homeowners insurance premiums include:
- Geographic location. Homeowners insurance is likely to cost more in areas with higher crime rates, expensive rebuilding costs, or stricter building codes. Also, a home in an area with a volunteer fire department located miles away may cost more to insure than one with a nearby fire station staffed by professionals.
- Your home’s age and condition. Other things that may affect homeowners insurance premiums include the age and condition of the roof, furnace, and other major home components.
- Home features. Homes equipped with security systems, like fire alarms, burglar alarms, or smart home technology, can help lower premiums.
- Endorsements. If you need additional coverage for highly valuable possessions, it can add to the cost of a standard premium.
- Deductible. Your monthly insurance premiums will likely be affected by the size of your deductible, or out-of-pocket amount if you file a claim. Generally, the higher the deductible, the lower your premiums will be.
- Claims history. Your home’s previous claim history, even from a past owner, can affect your premiums. Properties with frequent claims will often have higher rates.
- Credit score. The policyholder’s credit score is factored into the total cost because it demonstrates financial strength, the ability to pay premiums on time, and keep up with other expenses, such as home repairs.
How Do I Buy Homeowners Insurance?
Whether you’re a first-time homeowner or have owned a home for years, here’s how you can buy a homeowners insurance policy:
- Decide what you want to cover.
- Determine how much homeowners insurance you need.
- Choose an insurance company.
- Choose a policy.
1. Decide what you want to cover
Standard homeowners insurance coverage may not be sufficient to repair or replace your home and possessions. This may occur if rebuilding costs are higher than average in your area or your insured appliances and possessions are particularly expensive. If you are in one or more of these situations, you may want to look closely at coverage maximums for your policy.
Most insurance providers offer additional coverage for a fee, whether it is by increasing your coverage maximums or purchasing specific add-ons to cover your valuables. For example, a standard homeowners insurance policy may not provide enough coverage for things like valuable jewelry, artwork, or collectibles. Other items like a swimming pool that pose a safety and liability risk might also require additional coverage.
Additionally, standard home insurance policies don’t usually include flood insurance and would be considered an add-on or additional policy. Also, depending on where you live, flood insurance may not be available through all insurers.
If your homeowners insurance company doesn’t offer flood insurance, you may be eligible for coverage through the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA). NFIP policies are offered through independent agents nationwide. Costs and requirements can vary widely, depending on the risk factors of where you live. FEMA’s website includes an interactive flood map that can help you determine the risk in your area.
2. Determine how much homeowners insurance you need
To determine how much coverage you need, you’ll need to know the cost of rebuilding your home. You’ll also want to take inventory and appraise your furniture, clothing, and possessions.
Here are a few ways you can estimate your homeowners insurance needs:
- Calculate the cost to rebuild your home, plus any outbuildings or structures such as a garage, pool, or fence. To get a rough idea of the cost for your home, multiply the square footage by the local costs per square foot in your area. For example, if your home is 2,200 square feet and local building costs average $80 per square foot, the cost to rebuild your home would be about $176,000. A local insurance agent, real estate agent, or appraiser can probably help determine local building costs.
- Include outdoor furniture and personal belongings, such as a barbecue grill, collectibles, musical instruments, and hobby or sporting equipment. And remember anything tucked out of sight, such as linens and silverware, as well as items stored in the attic or the garage. You can also find a lot of information about making an inventory and other homeowners insurance-related subjects on the Insurance Information Institute (III) website.
- The more detail you provide in your inventory, the better. The III says it’s a good idea to note when and where you purchased expensive items, because the better your documentation, the easier it will be to estimate replacement cost and file a claim.
- Use video to document what you own. Film items in each room of your home, and remember to update your inventory periodically. There are also apps you can download that will walk you through the process and remotely store your inventory.
- Factor in the replacement cost for your belongings. This is the current price you would pay to replace an item, such as a washing machine, not what you paid originally. Replacement costs can change quickly due to inflation and other factors, and even a 2-year-old appliance might cost considerably more to replace today than what you paid for it.
3. Choose a homeowners insurance company
When choosing a homeowners insurance company, look for one that:
- provides coverage in your area
- has competitive rates and good discounts
- has a good financial strength rating
- has good reviews from professional sources and customers
- offers 24/7 assistance through its website, live operators, or a local agent.
Choosing the right homeowners insurance company is a matter of finding one that offers the coverage you need at a price you can afford, good customer service, and sound financial footing.
It may not always be easy to find all the coverage specifics you’re looking for on your own. You may want to consider working with a licensed insurance agent in your area who can help you tailor a policy to your needs. Captive agents work exclusively with one insurer, while independent agents can obtain quotes from multiple companies. Either way, an agent can be a helpful asset, especially if you’re a first-time buyer.
“It’s a good idea to get professional assistance to guide you through the process,” says Doug Ommen, Insurance Commissioner for the Iowa Insurance Division. But he also urges consumers to do their own research when looking for an agent and an insurance company.
Note that not all homeowners insurance companies provide coverage in all areas, so check this first to narrow down your choices. Also, some may not offer the standard or specialized coverage you want or need, such as hurricane insurance in a coastal area or additional coverage for collectibles or valuables.
If you want to know the financial strength of the insurance company of your choosing, you can check out credit rating agencies like AM Best. Financial strength is important because you will want to go with a company that will still be in business and can pay claims if needed.
There are also professional ratings and reviews that you should pay attention to, like our Best Homeowners Insurance Companies. These reviews can show how responsive a company can be when processing claims or when you reach out for questions.
4. Choose a homeowners insurance policy
Choosing the right homeowners insurance policy requires sufficient coverage to replace your home and its contents after a catastrophic event. To determine your coverage needs, calculate the cost to rebuild your home and inventory your belongings. Then, shop around for quotes from reputable providers offering the necessary coverage in your area.
The types of homeowners insurance coverage include:
- Actual cash value covers the cost of replacing your home or your belongings, but factors in depreciation when calculating reimbursement amounts.
- Replacement cost value covers the cost of rebuilding your dwelling as it stands today, regardless of depreciation.
- Modified replacement cost value is designed to cover older homes. Depreciation is not a factor in calculating reimbursement. However, original features like stained glass, ornate plasterwork, or millwork will be replaced with modern materials, not restored to their original condition.
- Extended cost value provides a set percentage of coverage beyond your policy limit, usually 20% to 25%, according to the Insurance Information Institute (III).
- Guaranteed cost value doesn’t place any dollar limits on replacement costs. However, upgrading your dwelling to meet the current building codes may not be covered.