How to buy homeowners insurance

Homeowners insurance is essential when buying a new home and to protect your most valuable asset. It only takes a few minutes to compare rates and get the best home insurance. (iStock)

It's a frequent question from those preparing to purchase a home: "Do I need homeowners insurance?" Buying proper homeowners insurance coverage provides financial peace of mind if an undesirable event like a fire, water leak, or burglary occurs. Accidents happen and home insurance can prevent financial disaster when substantial property damage and personal property loss take place.

The mortgage lender also requires home insurance until the full home mortgage is paid off. Banks also require insurance to get a home equity loan as the house is considered collateral.

Soon-to-be homeowners and current homeowners can use Credible to explore home insurance options and find the best coverage options. Familiarity with home insurance basics is key to getting the right coverage.

Tips for buying homeowners insurance

There are several steps to choosing the best home insurance plan:

  1. Take an inventory of what you own
  2. Shop and compare insurance companies
  3. Obtain quotes
  4. Select and purchase the home insurance right for you
  5. Look for discounts
  6. Perform an annual insurance review

1. Take an inventory of what you own

Home insurance can cover your personal property for theft and damage claims. Take a written inventory (or a cloud storage document) and photos of your items. Use this list to calculate the market value of your belongings to buy adequate coverage. The list and photos can make filing claims less stressful to receive proper compensation.

2. Shop and compare insurance companies

Most home insurance companies cover these events:

  • Fire
  • Theft
  • Vandalism
  • Weather-related events
  • Liability coverage for structural damage and injuries

The comparison process should also include deciding which additional coverages you want. Some may include sewer backup, earthquake insurance, and temporary living expenses.

Choosing the best insurance company depends on several factors in addition to the total cost of the insurance premiums and policy deductible. Just as homeowners insurance costs vary, so do the factors that influence those costs.

Homeowners should also compare reviews of the claims response. Verifying the insurer provides adequate home coverage for the mortgage lender and guarding your family finances is vital.

Credible can walk you through each homeowner's insurance policy and coverage. Plus, they can tell you how to save hundreds on homeowners insurance each year. Compare homeowners insurance rates, home insurance companies, and their plans via Credible.

3. Obtain quotes

Home insurance quotes are free and can offer many coverage options. Understanding how homeowners insurance works can help you compare insurance quotes with confidence.

For example, you will want to decide if want your home coverage to only insure against "named perils" where you can only submit claims for specific incidents. Upgrading to a policy covering "open perils" insures more events as we don’t know what accidents might happen.

If you need to file a claim, you must decide if you want the dwelling coverage to insure the actual cash value (the home market value after depreciation) or the replacement cost.

You will need to enter these details to get an accurate rate quote:

  • The estimated value of the home and your personal belongings
  • Home address
  • Age of home
  • Size of home (square feet)
  • Roof type and its age
  • Security features
  • Actual cash value or replacement cost reimbursement
  • Desired deductible
  • History of previous insurance claims

4. Select and purchase the home insurance right for you

Most home insurance quotes include basic, medium, and premium coverage options using your home details.

Here are four different home insurance coverage levels:

  • HO-1 insurance: Hazard insurance for the home structure only
  • HO-2 insurance: Home and personal property insurance for named perils only
  • HO-3 insurance: "Open peril" home insurance and "named peril" personal property
  • HO-5 insurance: "Open peril" insurance for home and personal property claims

The HO-3 insurance and HO-5 insurance quotes can have the most expensive rates but offer the most peace of mind. Comparing the policy deductible can help you choose the best coverage for your budget.

5. Look for discounts

Most homeowners insurance policies offer discounts beyond choosing a higher deductible or lower coverage limits. By completing certain tasks, you can potentially save money. This includes installing a home security system, storm-proofing the home, and paying the annual insurance premium upfront.

6. Perform an annual insurance review

Taking a few minutes each year before the policy renewal date to compare rates and to make sure you have affordable home insurance. Insurance rates can increase as your house gets older or the replacement cost for the home and personal property increases.

Use this review to update your coverage limits and for your current insurance needs. Then, you can compare your policy options with different insurance companies. With different coverage amounts, it’s important to shop around to find the right home insurance plan that fits your needs. Visit Credible to start the process and maximize the value you gain from your homeowner’s policy.

If you decide to switch insurance companies, activate your new policy before the existing policy expires. Homeowner's insurance doesn’t have a flexible grace period like other insurance products.

An accident that happens during a coverage gap most likely won’t be insurable and can cost a small fortune in out-of-pocket expenses.

Final thoughts

Buying homeowners insurance only takes a few minutes but can save a lot of money if an accident happens. If the time comes when you have to file a home insurance claim - whether it be for water damage, burglary, or something else - you'll want to make sure you have enough to cover your losses. Comparing coverage options and looking for discounts protects your home and family finances.

Wondering how much you could save? Head over to Credible, which has partners who can give you a free quote. It only takes two minutes.