How To Choose the Best Homeowners Insurance Policy for You

Although buying the right home insurance policy may seem complicated, it’s actually a fairly straightforward process. To begin, you’ll need to determine the value of your home and its contents. Then, select a company and policy that provides the coverage options you need at a reasonable price.

Take the following steps to purchase homeowners insurance:

1. Decide what you want to insure. A standard homeowners insurance policy may not cover valuable jewelry, artwork, or other collectibles. Likewise, you may need additional coverage if you have a trampoline, pool, or something else on your property that poses a risk of injury or death to others. Also, if your home occupies a flood-prone area, you’ll probably need a separate flood insurance policy from your home insurance provider or the National Flood Insurance Program.

Similarly, if you live in an earthquake-prone region, you will need additional insurance to cover related damage. Use the U.S. Geological Survey’s fault map to find out how close you live to a fault line and to better understand your risk of an earthquake.

2. Determine how much home insurance you need. Take an inventory of your personal belongings. If you have receipts, file them away. Use this information to decide how much coverage you need for your property.

For your home and other structures on your property, get an estimate from your insurance company or a real estate agent for the average rebuilding cost in your area per square foot.

Determine how much you might spend on a hotel, meals out, and other living expenses if your home were to be destroyed or become uninhabitable after a disaster. The Insurance Information Institute (III) can help walk you through the process, as can a licensed insurance or real estate agent.

3. Choose an insurance company. To choose the right homeowners insurance company, you will want to find an insurer that sells policies with the coverage and other features you need at an affordable price. In addition, look for a company that has a high financial strength rating from AM Best or another rating agency, gets good consumer and professional reviews, and allows you to file a claim or seek assistance 24/7.

4. Choose a policy. The right home insurance policy will provide sufficient coverage, have terms that are easy to understand, and may even offer discounts. Consider purchasing a replacement cost policy that will reimburse you for the cost of replacing your property with new items, rather than a cash value policy that only pays the depreciated value.

Many insurance companies will give you a discount if you buy more than one type of policy from them, such as home insurance and auto insurance. This is called insurance bundling or a multi-policy discount. This is worth it to the insurance company because it generates more revenue per customer and helps promote customer loyalty.

Insurance bundling doesn’t always save money. For example, an auto insurance company may offer lower rates than companies that sell several different types of policies, according to Amy Bach of the consumer advocacy group United Policyholders. Bach says that a company that specializes in auto insurance may also offer benefits not available in an insurance bundle from another insurer, such as ticket forgiveness or claims-free discounts.

 

  1. Determine how much insurance coverage you need. To estimate the coverage you need, take a home inventory. A home inventory is a detailed account of all of your personal property both inside and outside your home. Calculate the cost to rebuild your home after a disaster. (Ask a real estate agent for building costs in your area.) Determine if you need additional coverage for earthquakes, floods, or a high-risk item, like a swimming pool.

    If you have trouble determining how much home insurance you need, the Insurance Information Institute (III) can help walk you through the process, as can a licensed insurance agent or real estate agent.

  2. Decide if you want replacement cost coverage or actual cash value coverage. When buying a policy, you’ll likely have the option to select how you’re reimbursed should you make a claim.

    Replacement cost policies issue claim payments without factoring in depreciation. For instance, if your home is damaged in a fire and must be rebuilt, your policy would cover the costs of materials that are similar in quality, even if the price of materials has increased since your home was built.

    Actual cash value policies issue payments based on the depreciated value of the damaged item. Using the same example as above, your insurer would reimburse you for the cost of materials minus depreciation, which may be less than the actual costs to rebuild your home.

    As a result, most insurance experts recommend a replacement cost policy, even though premiums are somewhat higher.

  3. Narrow your search to several home insurance providers. As you review your options, it’s helpful to factor in:
    • Coverage types and features
    • Policy management options (e.g, online, mobile app, agent)
    • Additional types of coverage you may need, such as auto insurance
    • Professional and consumer reviews

    Considering these things up front can help you eliminate companies that don’t meet your specific needs.

  4. Gather quotes. Once you have chosen a few companies, use the estimate tool on their websites to get an idea of how much it will cost for the coverage you need. It can be helpful to talk to an agent in person or over the phone at this point for additional help. Get quotes from several companies, but be sure to compare policies that offer similar coverages.
  5. Contact the company and begin the application process. As mentioned in the previous step, how you contact the company will vary.

Some home insurance companies may require a home inspection to confirm the condition of your home and ensure you have adequate coverage. If a home inspection is required, the insurance company will send an inspector to your home.

Due to COVID-19, many insurance companies have updated their inspection process to follow safety precautions, including wearing PPE and social distancing. Some inspections will not require you to be present because the inspector only will focus on the exterior of your home, including the roof, and any potential hazards in your yard that could cause damage to your home in the case of a severe storm.

However, some companies are still completing interior inspections focusing on the condition of your home’s electrical systems, ventilation, fireplace, plumbing, heating, and air conditioning systems. When purchasing home insurance, check the requirements of the insurer you are considering to determine their home inspection practices.

For more information, see How to Buy Homeowners Insurance.

To file a homeowners insurance claim:

1. File a police report, if needed. The Insurance Information Institute recommends filing a police report in instances of burglary, theft, and vandalism. Be sure to retain a copy of the report you file and make note of any and all law enforcement officers you speak with. Some cities, such as Austin, Texas, will allow you to file a police report online.

2. Notify your insurance company as soon as possible. This can be done online, via the company’s mobile app, or over the phone, depending on your policy and the insurer. This will facilitate your claim and help ensure that you’re compensated promptly.

3. Document damages. Whenever possible, take photographs or a video documenting damages. And, if you’re filing a claim due to theft, make a detailed list of everything that was stolen. It’s also helpful to write down any other information that may be pertinent to your claim. If you have security cameras, collect and share all footage with your insurance provider.

4. Make any urgent repairs. After the damage is documented, make any emergency repairs or those necessary to prevent further damage to your home, assuming you can do so safely. The III recommends retaining receipts for any materials you purchase and keeping damaged materials you replace until your insurance company adjuster has examined them. Avoid making permanent repairs until after the adjuster views the damages.

For more information, see How to File a Homeowners Insurance Claim.

 

What is homeowners insurance?

Homeowners insurance is a type of insurance policy that provides financial protection in the event something happens to your home or your belongings. A policy will specifically name what structures and items are covered, to what amount, in what circumstances, and how much you will have to pay before the insurance policy starts paying you (this is called a deductible).

For example, a policy might state that your home is covered in the event of damage from a fire up to $300,000 with a $1,000 deductible. This means that if your home is destroyed in a fire after you pay the $1,000 deductible, the insurance company will pay you up to $300,000 to repair or reconstruct your home.

Most standard policies will also cover your personal belongings up to a preset limit, provide some liability coverage in case you are sued if someone is injured on your property, and provide loss-of-use coverage. Loss-of-use coverage reimburses you you can’t stay in your home due to a covered event and must find a hotel. Loss-of-use coverage reimburses you when you can’t stay in your home and must find a hotel due to a covered event.

Do I need homeowners insurance?

Most homeowners should purchase home insurance even if it isn’t required by their mortgage lender. Many mortgage lenders will require you to get homeowners insurance to financially protect themselves, but home insurance is also among one of the best ways to protect your largest investment: your home.

Even if you can afford to rebuild or replace all of your possessions in the event that your house is destroyed or robbed, homeowners insurance is an inexpensive way to avoid having to pay the huge out-of-pocket expense.

To learn more, see our What Does Homeowners Insurance Cover? guide and find out the best homeowners insurance in your state by reading our guide on Local Homeowners Insurance Companies.

What does homeowners insurance cover?

Homeowners insurance covers your assets in the case of unforeseen events. A homeowners policy will pay to repair or rebuild your home or outbuildings, like a garage, if something unfortunate or even catastrophic happens to it, such as theft, vandalism, storm damage, water damage, or a fire. Your policy will also cover your personal possessions that are stored in your home or on your property, such as clothing and furniture.

Insurance will also provide liability coverage if a guest is injured on your property. Coverage includes paying their medical expenses and your legal fees if they sue you. If your home is uninhabitable because of a covered event like a fire, a typical homeowners policy will also cover living expenses like a hotel room and meals out.

Finally, home insurance can even cover items like a swimming pool that increase a homeowner’s liability risk or high-value items like fine jewelry, although these often require a higher premium to insure.

When purchasing an insurance policy, you should speak to an insurance professional from the company to ensure that you receive a policy that meets your specific needs at the best possible price.

 

What is hazard insurance?

Hazard insurance is part of a standard homeowners insurance policy and is sometimes known as dwelling insurance. It applies to the structure of your home in the event that it is damaged or destroyed by a named peril (aka the “hazard” in hazard insurance). If you have a mortgage, you might be required to carry a certain amount of hazard insurance coverage as part of your overall home insurance policy

Hazard insurance can help cover damages to your property from named perils such as:

  • Fires
  • Explosions
  • Vehicles
  • Hail
  • Lightning
  • Theft
  • Vandalism
  • Fallen trees

Hazard insurance doesn’t cover damage from flooding or earthquakes. You will typically need a separate policy for each of these disasters, and coverage will vary based on insurer and where you live.

How much does a homeowners insurance policy cost?

For the companies in our rating from which we were able to obtain quotes for our sample policy, the monthly premiums ranged from just under $100 for a policy with Erie Insurance to almost $170 for a policy with Allstate. There are a number of variables involved in getting homeowners insurance quotes such as the location of your home, square footage, and amount of coverage offered. For more information on quotes visit our guide to Homeowners Insurance Quotes.

Does homeowners insurance cover damage from flooding?

In general standard homeowners insurance policies don’t cover flooding. For information on whether or not your home is at risk for flooding, you can look up your home’s location on the FEMA Flood Map Service Center’s website. You can purchase flood insurance through the NFIP from many of the companies in our rating.

Does homeowners insurance cover damage from a fire?

Most homeowners insurance policies will cover your home in the case of fire damage. This coverage generally extends to damage caused by wildfires. If you live in an area with a high risk of wildfires you will want to review your coverage.

If you’re unsure if your home is at risk from wildfires, you can look it up on the Wildfire Risk to Communities website. This resource was developed by the USDA Forest Service.

Does homeowners insurance cover earthquake damage?

Damage from earthquakes is typically not covered by a standard homeowners insurance policy. To cover damage resulting from an earthquake, you need a separate policy. Several companies in our rating, including some of our top-rated companies, like Lemonade and Amica offer earthquake policies, although Lemonade only offers earthquake insurance in California.

You can review FEMA’s Earthquake Hazard Maps to see the earthquake activity in your region.

Does homeowners insurance cover storm damage?

The answer to this will depend on both your specific policy and how the damage was incurred. In general, damage from lightning, hail, and wind will be covered by a standard policy. However, if the damage is from flooding as a result of a storm (think the storm surge in a hurricane) then it will likely not be covered by a standard policy and would be covered by a flood insurance policy instead.

Though many policies cover storm damage, some may exclude or require a higher deductible for damage caused by windstorms. This is particularly true for homes that are located in coastal areas prone to hurricanes.

Does homeowners insurance cover mold?

Whether or not mold is covered by your insurance policy often depends on the circumstances that created it. According to the Insurance Information Institute (III), mold usually isn’t covered unless it’s caused by a covered peril, such as a burst pipe. Even then, coverage isn’t guaranteed. The best way to determine if your homeowners insurance policy covers mold is by thoroughly reviewing your insurance agreement or contacting your insurer.

 

Is homeowners insurance tax-deductible?

Homeowners insurance is not tax-deductible if the policy is for your primary residence, according to the IRS. However, you can take a tax deduction for home insurance policies on any rental properties you may own. You may also be able to deduct a percentage of your home insurance premiums if you work full-time from a dedicated home office, depending on your policy. Likewise, you may also be able to take a tax deduction if you have a roommate or tenant on your property.

Leave a Comment