The Ultimate Guide to Homeowners Insurance: What Every First-Time Homebuyer Should Know
Purchasing a new home is a time filled with anticipation. However, along with the excitement, there are several tasks you must accomplish. One of these involves securing homeowners protection. This homeowners insurance guide will help first-time buyers understand the ins and outs of obtaining a policy.
Navigating Home Insurance as a First-Time Buyer
As a first-time homebuyer, you are likely filled with numerous questions about all aspects of this journey. Understanding what homeowners insurance is will help you in selecting the right plan. Purchasing a homeowners policy is one of the important components of navigating this process.
Understanding the Basics of Homeowners Insurance
A first-time homebuyer insurance policy is typically called HO-3 insurance. Most private companies will be able to offer you this type of coverage. What does homeowners insurance cover? It protects your new home, your personal belongings, and your liability as a homeowner. The elements of this type of policy include coverage for the following:
- Dwelling: This part of the protection involves covering the home’s structure as well as other attached buildings, such as a garage.
- Other structures: This part of the plan will ensure you have coverage for other structures on the property. This can include things like a separate shed or a pool building.
- Personal property coverage: All of your personal belongings, such as household items and clothing, are incorporated into this section.
- Liability: If someone comes onto your property and gets hurt, you may receive help with legal fees should they decide to sue you.
- Medical payments: In a liability situation, the person who was injured will have medical bills, too. This helps pay for those expenses.
- Additional living expenses: Your insurance plan will help cover living costs if your home becomes uninhabitable due to severe damage.
The Importance of Timing: When to Start Looking for Insurance
It’s never a good idea to wait until the last minute when purchasing a first-time homebuyer insurance policy. The sooner you begin the process, the greater the chance you will find the best one to fit your needs and budget. You can start the research process early. You can even begin an online search before you select a home. This will give you an idea about what type of costs you can expect. Reading the online reviews will provide better insight into what to expect and what customers think about the insurance company.
Additionally, a real estate agent may be able to give you recommendations for homeowners protection. Whichever route you take, it’s best to compare several quotes before settling on one.
Choosing the Right Coverage for Your New Home
When selecting your policy, you can work with an agent to ensure you get the right coverage to fit your situation. In some instances, you may need additional coverage for certain parts of your policy.
Identifying the Right Amount of Coverage
When choosing the amount of coverage, you need to consider obtaining policy limits that can cover an appropriate amount of damages. For example, if your home costs $300,000 to reconstruct in the event of complete damage, you may want to use that as your coverage limit. You and your agent can find out the estimated replacement cost for your new home so that you can secure the appropriate amount.
You also may want to consider a policy that includes extended replacement costs. This optional protection provides an additional percentage that goes above the amount of dwelling coverage if your home is destroyed. Having an additional amount offers a buffer in case you run across extra costs during the rebuilding phase.
To ensure your personal belongings have the proper protection, you will need to create an inventory that documents all your items and associated value. If you have valuables, such as jewelry, you may need to purchase additional coverage to protect against loss.
Recognizing Common Exclusions and Gaps in Coverage
Just because you have a homeowners insurance policy doesn’t mean that every single thing is covered. There are some common exclusions and potential for gaps in your protection. So, it’s necessary to review what those might be with a qualified agent to ensure you aren’t caught by surprise if something unexpected occurs.
Most basic policies won’t cover certain types of damage. Some of these include natural disasters, such as floods and earthquakes. You can talk to your agent about adding additional protection if your home is in an area that experiences any of these situations.
Additionally, a standard policy probably won’t cover sewer or drain backups, mold and mildew issues, or damage caused by termites, rodents, or other pests. You may have some protection against accidental sinkhole damage. Be sure to ask your home insurance company if there’s an option to purchase protection for any of these excluded incidents.
Damages that occur from not maintaining your home or allowing necessary repairs to go unfixed are not covered.
Cost Considerations for First-Time Homebuyers
When assessing the cost of your first-time homeowners insurance policy, your deductible plays a crucial role in the premium amount. The deductible is the amount you must pay if something happens and you need to file a claim. Deductibles may be a fixed dollar amount, or it might be a percentage.
A fixed dollar amount works the same as with an auto deductible. If you file a claim, you must pay the deductible amount, and your insurer will cover the remaining costs.
Alternatively, it may be a percentage of your home’s insured value. Typically, the percentage ranges from 1% to 5%. So, if you have a claim and your home is insured for $200,000, you would pay $4,000 if your deductible percentage is 2%.
How Much Should First-Time Buyers Expect to Pay?
The average cost for a homeowners policy premium is $2,151 per year for a home valued at $300,000. This is just an estimated amount. The specifics of your policy will vary based on unique details and other factors. For example, you may choose to add flood protection, which will increase the amount.
Tips for Finding Affordable Home Insurance Options
The best way to find affordable home insurance is to research different carriers and have an agent provide you with more than one policy option to consider. If you change your deductible amount, you will also see the premium change accordingly. For example, the higher your deductible, the lower your annual premium cost. However, keep in mind that if you do have a claim, you will need to pay the deductible amount. So, be sure you are comfortable with the higher amount.
Maximizing Discounts and Savings Opportunities
In addition to changing your deductible amount, you can find other ways to save on your premium. Maximizing any available discounts and savings opportunities will benefit you in saving money in the long run.
Bundling Insurance Policies for Better Rates
Bundling policies with one carrier maximizes savings because companies typically offer a discount to do so. The amount of savings varies, but you may be able to save up to 15% by bundling homeowners insurance with another coverage, like an auto policy.
Exploring Discounts for Security Improvements and Other Factors
When underwriters calculate the premium amount, they consider the risk factors for your home. If you take steps to reduce risk, you can obtain savings. Installing an alarm system that is connected to a switchboard that calls the police in the event of a break-in can lower your annual premium by as much as 5%.
Other ways you may be able to cut premium costs include:
- Installing smoke alarms
- Putting in carbon monoxide detectors
- Using dead-bolt locks
- Installing a sprinkler system
Get an Affordable Home Insurance Quote
Now that you are more familiar with how a homeowner’s policy works for first-time homeowners, take time to discuss your insurance with a qualified agent. At Acceptance, you can count on thorough coverage for your home with budget-friendly prices. Our agents can discuss any concerns you have to ensure that you get the best coverage at the most affordable cost. Contact us by phone at (877) 405-7102. Additionally, you can visit one of our many locations or get a quote online.
FAQs for First-Time Home Insurance Shoppers
Following is a set of frequently asked questions about homeowners insurance.
Are There Specific Home Insurance Requirements for Mortgage Approval?
Mortgage companies will almost always require you to have a policy that protects the home. They are loaning you the money to purchase the house, so they have an invested interest in the house, making a policy indispensable to them.
The premium amount is collected as part of your monthly mortgage payment for the house. The mortgage company then puts the money in an escrow account. From there, it is distributed to the insurer as needed. Using an escrow account in this way simplifies bill paying for you.
What Is the Difference Between Actual Cash Value and Replacement Cost Coverage?
You can set up your policy to receive actual cash value (ACV) or replacement cost if you file a claim. If you have ACV, it will calculate the losses after deducting depreciation, which is how much the items are worth at the time of loss.
Replacement cost will calculate how much the items would cost to replace on the date of loss. An agent can help you learn how to read your homeowners insurance policy documents so you can understand the finer details.
How Often Should I Review and Update My Home Insurance Policy?
It’s a good idea to review your home insurance policy at least once a year to be sure you don’t need to make any changes.
What Additional Coverages Might Be Necessary for A First-Time Homeowner?
You may wish to add natural disasters to your policy as well as coverage for additional living expenses.
