With dozens of insurance companies to choose from, and with multiple factors to consider depending on where you live, choosing the right homeowners insurance can be a daunting task for first-time home buyers.
However, experts say home insurance is crucial because it can help provide a financial safety net in the event of an unexpected event. Home insurance generally covers all damage and damage inside or outside the home, lost or stolen belongings, and personal liability for damage to others.
“If you’re wondering if home insurance is a good investment, the answer is yes,” says Amy Richardson, a board-certified financial planner with Schwab Smart Portfolios. “Homeownership is inherently expensive, so an emergency insurance policy can help protect your cash flow and free up funds for future non-home-related events.”
The good news is that there are a number of different ways you can customize your coverage based on the provider you choose and the area you’re moving to. If this is your first time buying a home and you’re not sure where to start, here are some tips on how to choose the best homeowners insurance for you.
Homeowners Insurance Costs for First-Time Home Buyers
According to the latest Bankrate data, the average homeowners insurance cost in the U.S. is $1,312 per year, or about $109 per month, based on a $250,000 home, which is the equivalent of a mid-sized home.
“It’s an absolutely necessary protection, especially for first-time buyers. In almost all cases, it’s a requirement for them to complete the closing process,” said Burns, an insurance wholesaler in Farmington Hills, Michigan. & Wilcox corporate vice president Bill Gatewood said. “The mortgage companies want to protect themselves in the event of a catastrophic event on the home.”
However, policy rates are largely determined by the risk of the insurer. For example, the more dangerous the area you live in, the more you may have to pay. For example, in Arkansas, which is particularly prone to natural disasters like hurricanes and tornadoes, the average policy cost is $2,142 per year, while in Delaware it costs just $680.
Insurers also assess risk based on prior claims related to the property itself, its overall condition and nearby areas. Home value also plays an important role in determining your interest rate. For example, insurance on a $150,000 home is often much cheaper because the replacement value is much less than a $500,000 home.
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Tips for saving on insurance costs as a first-time home buyer
First-time homebuyers should always do a price comparison before purchasing homeowners insurance. Almost every insurance company offers different discount and premium options, so it’s worth spending more time browsing to find a policy that fits your budget and insurance needs.
Tip 1: Buy home contents insurance early
After you sign the contract and get your insurance provider’s address, start looking for coverage and get at least three to five quotes. Don’t just contact the first insurance company you come across or are referred to. Compare prices and coverage, and check company reviews to make sure you’re getting the best coverage at the best price.
“If you can shop around, you’ll be in better shape financially and get the proper protection for your home,” Richardson said.
When shopping, make sure you are comparing the same type of policies from different insurance companies. “The most common form of home insurance is the HO-3 policy, which covers damage to your home and property from many different risks. A good starting point is to compare the premiums of HO-3 policies to make sure you’re comparing apples to apples ,” Richardson said.
Tip 2: Determine the amount of insurance that is right for your home
It is important to insure your home at replacement value rather than market value. In order to determine the correct amount of coverage for your home, you need to know how much it will cost to repair the property.
It is best to speak with your insurance company as they can accurately assess the property and its coverage requirements. Once the insurance company has determined the cost of replacing the home, ask how that figure came about. All insurance companies have different estimation formulas, and you should make sure your formula is correct.
It is also important to understand the 80% rule. If the homeowner’s insurance covers 80% or more of the total value of the home, the insurance company will only cover the cost of damage to the home. If your insurance coverage is less than 80%, you will pay part of the cost of damage.
Make sure your home insurance covers at least 80% of the home’s value, but you should always aim for 100% coverage.
Tip 3: Know what’s not covered
Look for exclusions in the policy. Many homeowners insurance policies list certain types of damage they don’t cover, which often include natural disasters such as floods, mudslides, and earthquakes. If you wish to include exclusions in your policy, check to see if your insurance company offers additional coverage. Certain types of insurance, such as B. flood insurance, can be purchased separately.
Tip 4: Consider how much you are willing to pay out of pocket
Ask your insurance company whether the policy deductible is a fixed amount or a percentage of the insured amount. The deductible is the amount you are responsible for making a claim before the insurance company pays it out. You can lower your monthly premium by increasing your deductible, but you should make sure you can find that amount or put it into an emergency fund in case a loss occurs.
“Get the biggest deductible you can afford out of your pocket, for this reason: Your homeowner’s policy is designed to cover large catastrophic losses,” Gatewood said. “The minimum deductible should be $1,000, but you can save money by raising it to $2,500 or $5,000.”
Tip 5: Consider bundling your home and auto insurance
By bundling your home and auto policies, you can save anywhere from 10% to 25%, depending on the insurance company. When purchasing home insurance, homeowners should compare individual policies and bundled policies to determine which is more cost-effective. Other home insurance discounts, such as other things like security systems or certain smart home upgrades, can also lower your premium.
As a first-time home buyer, the best way to ensure you get the best homeowners insurance deal is to start shopping early, do as much research as you can, and always ask questions.