How to Find the Best Insurance for First-Time Homebuyers
Find Cheap Homeowners Insurance Quotes in Your Area
Most first-time homebuyers are required by their mortgage company to have insurance in place before closing on their new home. Shop for insurance as soon as you have a confirmed contract, so you have enough time to compare quotes from at least three companies.
The amount of insurance you need is based primarily on the home you're buying and the value of your belongings. It's important that you understand how much coverage you need before you get quotes, so you can choose the best policy.
Do first-time homebuyers need homeowners insurance?
If you are taking out a mortgage, as most first-time homebuyers do, you'll probably need to buy homeowners insurance before you close on your new home. That's because mortgage companies require insurance to protect their investment in your home.
If you're not relying on traditional financing, you won't need to provide proof of insurance, but that doesn't mean you shouldn't have it. A homeowners insurance policy will ensure you don't incur significant costs if something happens to your home or belongings or someone is injured on your property.
How soon before closing should I get homeowners insurance?
Most lenders require proof of insurance in the form of a binder at least three days prior to closing. A binder is a legal agreement from your company promising to insure your new home as soon as you close.
Insurance binders last 30–90 days, which means you can get your policy much earlier than the three-day deadline.
Make sure your binder doesn't expire until after your closing date, which is when the insurance company will issue a permanent policy. (If you forget and the binder expires, request an updated one from your agent.)
Insurance coverage for first-time homebuyers
When you're buying homeowners insurance for the first time, it's important to familiarize yourself with your coverage. Here are a few ways a policy protects you:
- Dwelling coverage protects your home's physical structure from perils such as fire, theft and vandalism.
- Personal property coverage protects your belongings, including furniture, jewelry and electronics.
- Other structures coverage protects buildings on your property like a detached garage, shed or pool house, which are called outbuildings.
- Personal liability coverage protects you against lawsuits for property damage or bodily injury you're responsible for.
- Medical payments coverage pays the medical bills of a guest or worker who is injured in your home.
- Additional living expenses coverage reimburses you for having to stay in a hotel or rental home while your home is being repaired.
Knowing what's not included in your policy is just as important as knowing what is. Some first-time homeowners may need supplemental insurance policies.
- Many coastal homes require flood insurance for rising water due to storms. Even if your home is not in a flood zone, you may want to buy a policy, since flooding is not covered by most homeowners insurance.
- If your new home is near a fault line or your area has a history of earthquakes, earthquake insurance is an important consideration.
- High-value personal property, such as expensive jewelry, artwork and electronics, may not be covered by the limits set in a standard insurance policy. To protect these items, add scheduled personal property coverage. You'll need to provide proof of purchase or appraisals to establish the value of your belongings.
- The cost of regular home maintenance or replacing major appliances can be overwhelming for first-time homebuyers. Home warranty policies can cover your appliances, heating and cooling systems, plumbing and electrical and more for a service fee.
How much homeowners insurance do I need?
The amount of insurance you need is specific to you and your new home. Here are the most important things that should be covered in a policy:
Dwelling insurance
The limit for dwelling insurance should be enough to rebuild your house after a total loss due to a covered peril. It is not the same as the purchase price of your new home. So while your lender will require a minimum amount of coverage, it's important to research local building costs to estimate the replacement cost of your home.
Personal property insurance
Personal property is usually insured for 20% to 50% of the dwelling coverage, so make sure your policy offers enough coverage to replace your furniture, clothing and other valuables. Also pay attention to whether your policy provides replacement cost or actual cash value for your items. With replacement cost, the insurance company will replace your items with new ones, whereas actual cash value considers your items' depreciated worth at the time of the loss.
Other structures
Other structures coverage applies to any buildings on your property not attached to your home, such as sheds and detached garages. Make sure the amount listed in your policy is sufficient to rebuild these structures if they're damaged.
Liability insurance
To determine the appropriate liability and medical limits for your policy, consider the potential hazards at your new home, such as a pool or trampoline. If you entertain often or have a dog, higher liability and medical limits are best to protect yourself and your guests.
Additional living expenses
Additional living expenses coverage can cover the cost of a hotel or rental house while your home is being repaired. So consider the cost of temporary living arrangements in your area. Take into consideration your needs: Some homeowners can make do with a small hotel room, but a family with work-from-home parents would likely require a larger rental home.
How to shop for homeowners insurance
After you decide how much insurance you need, you can start your search for the best home insurance.
Step 1: Compile a list of companies that offer homeowners insurance in your area
Your real estate agent can likely refer you to a few agents they know and trust. However, if none of their recommendations feel like the right fit for you, you can also search online to find the best homeowners insurance companies in your area. Family members and friends may also have recommendations. Additionally, if you already have a renters or auto policy, check to see if your current company offers homeowners insurance.
Step 2: Research ratings
Resources like J.D. Power and the National Association of Insurance Commissioners (NAIC) complaint index will give you insight into how different companies perform when customers file a claim. This can help you avoid dealing with payout difficulties when you need to use your policy.
Insurance companies also receive financial stability ratings, which evaluate how well they can weather catastrophic losses that affect a large number of clients. Research ratings at AM Best, Demotech, Standard and Poor's (S&P), Moody's and Fitch Ratings, and narrow your list to companies that have an A rating.
Step 3: Compile quotes
Reach out to your top choices to find out how much their policies cost. Before you pick up the phone, make sure you have the following information handy:
- Personal information, such as your Social Security and driver's license numbers
- Property address
- Construction details, including square footage, the age of the roof and building materials
- Safety features like sprinklers and alarm systems
- The type and amount of coverage you need
Many insurance companies offer savings, even for first-time homebuyers. Some of the most common discounts are:
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Multipolicy discounts for bundling home and auto insurance
- Safety feature discounts for smoke alarms and sprinkler systems
- Security discounts for a monitored alarm system or lightning protection system
- Roof discounts for impact-resistant materials or newer roofs
- Affiliate discounts for belonging to an alumni association or professional organization
Step 4: Compare rates
Once you have all of the quotes, it's time to compare them. When you're buying homeowners insurance for the first time, it's important to remember that the cheapest policy isn't always the best. Make sure each quote has sufficient coverage for your needs.
Find Cheap Homeowners Insurance Quotes in Your Area
How much should homeowners insurance cost?
It can be hard for first-time homebuyers to know how much insurance should cost. On average, homeowners insurance costs $1,445 a year. But prices vary from state to state. Using thousands of homeowners insurance quotes, the average annual premium was calculated for each state. The following table shows the findings, from the most expensive to the most affordable states for home insurance.
Cost rank | State | Average insurance cost |
|---|---|---|
| 1 | Oklahoma | $2,559 |
| 2 | Kansas | $2,461 |
| 3 | Texas | $2,451 |
| 4 | South Dakota | $2,364 |
| 5 | South Carolina | $2,321 |
| 6 | Minnesota | $1,952 |
| 7 | Montana | $1,939 |
| 8 | Missouri | $1,914 |
| 9 | North Dakota | $1,901 |
| 10 | Alabama | $1,850 |
| 11 | California | $1,826 |
| 12 | Colorado | $1,813 |
Individual state averages are based on the median home value in each state, which was used as an approximation of the cost to rebuild the home.
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