What You Need to Know About Home Insurance Quotes
If you’re in the process of buying your dream home, there’s more to think of than just square footage and mortgage price. When buying a home, a mortgage lender will typically require you to have homeowners insurance. In this guide, we’ll break down the ins and outs of homeowners insurance costs and what you need to know before buying a policy.
What is home insurance?
Home insurance, also known as homeowners insurance, is a way to protect yourself financially in a variety of situations. Home insurance can cover the actual structure of a house in case there is property damage or destruction from something like a fire.
Basic home insurance can include dwelling coverage, which protects the structure as well as personal property coverage that can cover any stolen items. So if you have high-price jewelry and electronics and those are stolen from your home, you may be able to recover the cost from the theft as it will be considered a covered loss.
Plus, there’s liability coverage that can help protect you if something happens on your property.
So if there is damage to other people’s belongings or an injury that is caused by you or your pet, your policy can help cover those expenses, too.
In short, homeowners insurance coverage can cover the structure of your home, your belongings as well as liability.
Home insurance quotes
When you apply for home insurance coverage, you’ll get homeowners insurance quotes which are prospective prices you’ll pay for your policy. Each home insurance provider will have their own criteria to determine the home insurance quote.
Costs may vary by insurer, but typically providers look at similar factors that assess risk, liability, age, safety, and more. It’s important to note that home insurance quotes are merely estimates of what you might pay but could differ from the final cost.
Some home insurance providers require an inspection. A home inspection is to look for levels of risk, damage, wear and tear as well as safety. If your provider requires a home inspection, your final home insurance policy quote may be higher.
Insurance coverage
Companies that offer homeowners insurance will base their home insurance quotes on a variety of factors including:
- Neighborhood
- Size of home
- Age of home
- Proximity to fire stations/fire hydrants
- Living on the coast or body of water
- Flood risk
- Roof, whether new or old
- Pool or jacuzzi
Let’s take a closer look at some of these factors and how they affect home insurance rates.
Neighborhood/location
Where your home is matters. If your neighborhood experiences high rates of crime, your home insurance quote will likely be higher. On top of the neighborhood, the location matters as well. If you’re near the ocean or body of water, your risk is higher which will also affect your home insurance costs.
If your home is close to a fire station or fire hydrant and you have home security your home insurance quote actually might be lower. Being close to emergency care helps lower risk and liability.
Age/size of home
Home insurance protects the investment in your home should something happen to it. When it comes to risk factors, age and size of home are big ones. If you are interested in an older home that may require a lot of renovations in the future, your home insurance quote might be higher. The same is true for larger size houses as well. The more square footage, the higher the price. Consider that home insurance is designed to replace your home if necessary so size and age will determine the cost.
Safety
Having additional security features like an alarm system for break-ins, deadbolt locks, sprinklers, smoke alarms, and a fire extinguisher can all lower your risk for theft of personal property and damage. The additional security and safety from these features may result in a lower home insurance quote for home buyers, so keep an eye out for these features when looking for a new home.
Materials and building cost
Another factor that determines your home insurance quote is the material that your home is made out of. For example, wood is more flammable which means higher risk and would result in a higher quote. Having a brick home may mean a lower quote. On top of looking at the materials that your home was built with, the quote will be based on the cost of rebuilding your home. The home insurance provider may need the replacement cost, which refers to the amount required to rebuild your home as it was before or the cost of replacing your items.
Other factors
The factors listed above are fairly straightforward and it makes sense that they would affect home insurance quotes. But there are some other lesser-known factors that you should consider as well.
For example, in many states your credit score can affect your insurance premium. Insurance providers want to lower their risk so they may issue higher homeowners insurance rates for those with lower credit scores who might be more likely to file a claim. There are three states where checking your credit score for home insurance is banned, including:
- California
- Maryland
- Massachusetts
Aside from your credit score, your furry friend could have an impact on your home insurance quote. For example, if you own a pitbull your liability is higher so your rate would likely be higher too. If you own expensive musical instruments, your insurance premium could be higher as well.
Types of insurance
There are various homeowners insurance policies based on the home, which range from HO-1 to HO-8. According to the Insurance Information Institute, HO-3 is the most common type of homeowners insurance and provides broad coverage. Among these types of home insurance there are three different types of coverage options.
1. Actual cash value
Under an actual cash value policy, the total cost of your house and belongings will be covered, minus any depreciation, meaning you'll get market value. In other words, the policy can replace the cost of what the home and belongings are worth now, not the price that you paid.
2. Replacement cost
The replacement cost policy covers the cash value of your home and belongings but doesn’t deduct any depreciation and is especially helpful in loss of use after, say, a fire or natural disaster. That way you could replace or rebuild to keep the original value.
3. Guaranteed or extended replacement cost
This policy offers the most comprehensive coverage and guarantees to cover the total cost of rebuilding or replacing items up to their original value, even if it is higher than the actual policy limit. An extended replacement cost policy can cover more than policy coverage limit, but only up to a certain percentage. Typically, the policy covers 20 to 25% more than the policy limit.
Though a guaranteed or extended replacement cost policy will be more costly, it provides the most coverage and is recommended.
What to consider when selecting an insurer
On top of these three coverage options, there are other things you want to consider.
Deductibles. For example, you’ll want to choose a deductible that works for you. A deductible refers to the amount that you pay before anything else is covered. Your deductible could start at $500 or $1,000 and up. When you choose a higher deductible, you can score lower insurance premiums on your home insurance.
Gaps in protection. You also want to consider the gaps in protection with your home insurance and look for any exclusions. Home insurance doesn’t cover everything and you may need additional coverage. It doesn’t include things like earthquakes or floods.
So you can look into flood insurance as well to cover water damage. You also want to consider your level of risk and personal liability.
Personal liability. Whether you have renters insurance or home insurance, getting personal liability insurance coverage as well can cover all of your bases. Liability coverage may cover any additional needs after the home insurance coverage is used up.
Bundling discounts. Home insurance companies will often provide discounts for multi-policy holders. For example, if you also buy car insurance through your insurance agent, your personalized policy discount will be greater than having one policy.
Home insurance companies
To get your home insurance quote, you want to check various home insurance companies. Some major home insurance companies to consider include:
Allstate
Allstate is a home insurance provider that offers a variety of plans. Bundling your home policy with an auto policy you may be eligible for a 25% discount. You can also score an additional 5% discount when you set up automatic payments.
State Farm
State Farm is an insurance company that also offers a discount when bundling home and auto insurance with the company. If you have security and safety features in place, you could be eligible for a Home Alert Protection Discount.
Nationwide
You can also bundle your home and auto policies with insurance company Nationwide as well. Nationwide offers discounts if you bought a home in the last year and you could qualify for a Home renovation credit when you update your heating, cooling and plumbing.
The bottom line
Getting home insurance is part of the process when buying a home. You want to evaluate all of the risk factors and do your research with home insurance providers to find the best policy for you. More protection, even though it can be pricey, may be the way to go. Having home insurance that covers you for a variety of situations can give you peace of mind.