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How To Find The Right Homeowner's Insurance Policy For You

Dori Zinn4-Minute Read
April 03, 2020

Buying a home is already a daunting undertaking. But once you find your potential dream home, the work isn’t over yet. You’re going to need to insure it.

Since your home will most likely be the most expensive purchase you make, you’ll want to get proper coverage for it. Here’s how to find the right homeowners insurance policy for your home and budget.

What Does Homeowners Insurance Cover?

Homeowners insurance, just like health and auto insurance, is there in case you need it. If your home went through a major environmental catastrophe, like a hurricane or tornado, you’re expected to get money to restore or rebuild your home. In some cases, you’d get money to buy a new home. Common insurance will cover your home in case of:

 

  • Lightning
  • Theft
  • Vandalism
  • Fire/Smoke
  • Structural damage, like overflow of water or cracks in the home

 

Homeowners insurance not only covers the structure of your home, but also its contents. For instance, your personal belongings, like furniture, clothes and valuables are covered in homeowners insurance.

There are some things that homeowners insurance policies don’t cover, regardless of where you live, including:

 

  • Flooding
  • Earthquakes and landslides
  • Mold and infestations
  • Government action
  • General wear and tear
  • Nuclear hazard

 

Some policies let you add on features, like earthquakes. Other policies, like flooding, are sold separately.

How To Choose Your Homeowners Insurance

As you start the process of buying homeowners insurance, make sure you’re getting started the right way.

1. Find out what you need

There’s basic coverage, then there are add-ons. Standard coverage includes your home plus any attached structures, like a garage. It also covers things like a fence and shed. In the event of displacement, coverage includes additional living expenses. This is in case you need to temporarily relocate or cover basic needs, like meals and clothes. Liability coverage is in case you’re found liable for other people’s injuries on your property. Medical payments coverage will cover treatment for those who were injured in your home.

 

Add-ons include:

 

  • Extended replacement costs: This pays up to 50% above the limit of coverage if building costs go up after a disaster (like a hurricane or other major catastrophe).
  • Sewer backup: You’d be protected in case a sewer line causes a backup in your home. Might also be known as water backup coverage.
  • Contents replacement cost: Most policies will replace the actual cash value of your items, which means you’d be on the hook if the price is different than the replacement value. This coverage will pay for the replacement cost of the item, rather than the cash value of it.

 

Depending on where you live, you may want to consider flood insurance, usually sold by private agents.

2. Compare coverage

Most insurance companies are vying for your business and tend to offer competing rates to win you over. Get quotes from many different companies to see what they cover and how much you’ll pay out of pocket. Coverage varies by state, although there are no state-mandated requirements for homeowners insurance.

3. Bundle coverage

Some home insurance providers offer bundling coverage in many different areas, including:

 

  • Allstate
  • Farmers
  • GEICO
  • Progressive
  • State Farm
  • USAA

 

If you have insurance through one of these companies or want to switch to save some money, ask about bundling insurance policies.

4. Review deductibles

A deductible is what you’ll pay out of pocket before insurance kicks in to cover the rest. A higher deductible will keep your monthly insurance costs low, but it means you’re responsible for paying more. A lower deductible means insurance kicks in sooner, but could mean a higher monthly bill. Typical home insurance deductibles range from $500 – $1,000.

Where you live greatly impacts how much you’ll pay in monthly premiums. A Progressive report found that Utah residents pay an average of $604 a year, while Louisiana residents average about $2,006 a year.

5. Explore discounts

While bundling your coverage is helpful in lowering your costs, it’s not the only way to save money. Many companies offer discounts based on safety measures you take in and on your home. For instance, policies can include a discount if you install smoke detectors, storm shutters and water safety systems.

When you’re looking at coverage, see what upgrades you can splurge on so it saves you more in home insurance costs in the long run.

Bottom Line

Even when you’ve signed the deed, you still have plenty of work to do when it comes to your home. Home insurance is an important purchase and protects your home in case of an emergency.

It’s important to compare coverage and costs by each insurance provider. See what discounts are offered and what you can do to lower your monthly premium without sacrificing coverage. If you can afford to, increase your deductible to as much as you can comfortably afford out of pocket. For instance, if you can pay for repairs or upgrades yourself up to $1,000, this could lower your monthly premium costs. But if you can’t afford more than $500 out of pocket, expect to pay more each month.

Not everyone’s home is the same, so policies vary based on your structure and where you live. If you need extra protection, add on the essentials, but not more than you need. Remember that even though it might seem expensive, the cost to repair or replace your home is much more than what you pay in homeowners insurance. Pay what you can afford, but be mindful that you’re saving more in the long run.

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    Dori Zinn

    Dori Zinn is a personal finance journalist for more than a decade. She loves helping people learn about money, covering topics like credit, debt, investing, banking, real estate, jobs & careers, budgeting, college affordability, financial literacy, borrowing and more. Her work has been featured in CNET, Wirecutter, Quartz, Forbes, Bankrate, Credit Karma and others.