Buying Homeowners Insurance For The First Time – Buying a home can be so overwhelming that first-time buyers often do not give homeowners insurance much thought. However, homeowners insurance can make or break you if a disaster occur.
Buying Homeowners Insurance For The First Time
Here are four pointers to keep in mind:
- Compare coverage by contacting at least three businesses: You may be required to have homeowners insurance by your mortgage lender. It’s possible that you will have to buy additional insurance like flood insurance. You are not required to purchase from a specific insurance provider. Instead, compare coverage, cost, and reviews from customers. Make sure you get the right amount and type of insurance. Look for value rather than the lowest possible price. Ensure the insurance company you choose has positive customer service reviews because you will most likely deal with them during times of disaster.
- With your mortgage payments, escrow your insurance payments: If you are like most homeowners, you will add insurance payments to your mortgage payment each month. Your insurance premiums and your property taxes will be deducted from your escrow account by the lender. This option is preferred by lenders because it assures them that their investment is well protected and that your insurance premiums are being paid. At closing, you will probably have to pay for one year’s insurance. Bring the necessary funds to cover the first year’s premium as well as information about the insurance policy you have selected.
- Check to see that you have enough coverage: The amount of coverage provided by homeowners insurance is the most crucial aspect. Don’t spend more than you need. The most common levels of coverage are:
- HO-2, a comprehensive policy that safeguards against the sixteen risks listed in the policy.
- HO-3, a more comprehensive policy that covers all dangers, with the exception of those specifically excluded by the policy.
- HO-5, a premium policy that covers more recent, well-kept homes. Except for those specifically excluded by the policy, it covers all risks.
- HO-6; insurance for condominiums and cooperatives that covers personal property, liability, and improvements to the owner’s unit. Most of the time, the association provides insurance for the actual structure.
- HO-7; a mobile home-specific version of the HO-3 policy.
- HO-8; designed for older homes and offers coverage that is comparable to that of the HO-2 policy. However, only the actual cash value is covered.
- Learn everything you can about your policy: Obtaining the appropriate policy level is insufficient. Make sure you know these terms about homeowners insurance before making a decision:
- The amount you must pay out of pocket before your insurance kicks in is referred to as your deductible.
- Liability insurance pays for medical or legal expenses if someone is injured on your property as a result of negligence.
- The term “personal property” refers to tangible assets like clothing, electronics, and furniture, also known as “the contents of your home.”
- Premium: This is the cost of insurance, usually paid annually or on a monthly basis.
- The type of insurance known as “Replacement Cost” covers the full cost of replacing your home or other personal property, up to a certain amount. Most standard policies provide replacement cost, however, you should ensure that the maximum amount is sufficient.
- Actual Cash Value: This kind of policy shows you the current cash value of your home or other personal property including depreciation. As with an HO-8 policy, you can get coverage for your home’s actual cash value, but you can’t get replacement cost coverage for your contents.
- Limits and Sub-Limits: Most homeowner’s insurance policies have limits and sub-limits. For instance, the personal property sub-limit on a $500,000 policy amounts to $250,000, or fifty percent of the coverage for the dwelling.
Check your homeowners insurance policy to see how all of these terms relate to one another.
How to Compare Insurance Companies for Your Home
Here is a list of things to look for and do when looking for an insurance company:
- Make a list of the businesses that sell homeowners insurance in your area: Your real estate agent will be able to recommend a few agents they know and trust. Find the best homeowners insurance companies in your area by searching online and asking friends and family for recommendations.
- Do a company check: Look at the home insurance companies you are thinking about by checking their scores on the websites of the top credit agencies (like A.M. Best, Moody’s, J.D. Power, and Standard & Poor’s), the National Association of Insurance Commissioners, and Weiss Research. These websites keep tabs on everything from general customer feedback to claims processing and consumer complaints against businesses. In some cases, these websites also evaluate the financial health of a home insurance company to determine whether or not it can pay claims.
- Take a look at how claims are handled: After a large loss, your family may find themselves in a difficult financial situation if they have to pay for repairs on their own and wait for reimbursement from their insurance company. Core functions like handling claims are being outsourced by a number of insurers.
Check to see if third-party call centers will be handling your claims calls before purchasing a policy. Your agent should be able to provide feedback on his or her experience with a carrier as well as its market reputation. Make sure you know your insurer’s stance on holdback provisions which are when an insurance company holds back a portion of their payment until a homeowner can prove that they started repairs. Look for a carrier with a proven track record of fair, timely settlements.
- Satisfaction of Current Policyholders: Every business will claim to provide excellent claims service. However, ask your agent or a company representative about the insurer’s retention rate, or the percentage of policyholders who renew annually, to cut through the noise. The retention rates of many businesses range from 80% to 90%. Annual reports, online reviews, and good old-fashioned testimonials from people you trust can also provide information about customer satisfaction.
- Get several quotes: Instead of using a traditional insurance agent or financial planner who only works for one home insurance company, going directly to the insurance companies or speaking with an independent agent who works with multiple companies is the best way to get quotes. However, note that a broker licensed to sell for multiple companies frequently adds their own fees to policies and renewals.
What Coverages are you getting from homeowners insurance?
Your first homeowners policy will most likely be an HO-3 if you buy a single-family home as your first property which covers perils and safeguards your home and belongings. Additionally, it shields individuals from personal liability. Your homeowners insurance policy includes:
- Residence coverage: The dwelling part of a homeowners insurance policy safeguards the structure of your home and any attached structures.
- Coverage of other structures: An HO-3 also covers any other structures you may have on your property like a detached shed or a fence.
- Protection for personal property: If a covered peril damages your personal property, this section of your HO-3 policy will cover the loss.
- Insurance coverage: If someone gets hurt on your property and sues you for damages, personal liability coverage is included in homeowner’s insurance. Additionally, this coverage may assist in the payment of your legal fees.
- Health insurance coverage: If someone hurts themselves in your home or on your property, your medical payments coverage will cover their medical expenses.
- Additional coverage for living expenses: If a covered peril renders your home inhabitable, additional living expenses may assist in covering the cost of a hotel room, food, and other costs while your home is being repaired.
Exclusions exist in even the best homeowners insurance policies. For instance, earthquakes, floods, and sewer backup will not be covered by an HO-3.
When you buy your first homeowners insurance policy, it might be wise to talk to your agent about what isn’t covered and the risks associated with each exclusion. You can make better decisions about the supplemental policies that are right for you.
When you should buy homeowners insurance
Your risks as a homeowner begin when you buy your home, so you need homeowners insurance right away. Although home insurance is not required by law in most states, almost every lender requires it as part of your loan agreement. If you have a mortgage on your new home, your homeowners insurance policy must also be in effect on the day you close the deal, even though it cannot take effect before your closing date.
To make your policy effective on the closing date, you will need to inform your insurer of the mortgagee clause from your mortgage company as part of this preparation.
Which is the best provider of homeowner’s insurance for your first home?
A home insurance policy is a wise investment to safeguard your new home from damaging unanticipated hazards, regardless of whether your mortgage lender requires it. Because its website and network of local agents can help you find the right coverage, State Farm is our top choice for new homeowners.
However, there are other companies that might be more appropriate for your particular need such as Lemonade due to its speedy claim procedure or Travelers due to its deductible credits.
We advise first-time homebuyers to compare specific coverage and prices based on the details and location of their new home from at least three different companies, regardless of which one piques your interest the most.