How to Shop for Home Insurance in 6 Steps

What You Need to Know

• Before shopping for homeowners insurance, homeowners will want to identify the types and amounts of coverage they need.
• Homeowners will also want to familiarize themselves with insurance terms, such as “deductible” and “reimbursement methods.”
• Once homeowners know what they need, they’ll want to get quotes from at least three different insurers to compare.
• After choosing an insurance company, homeowners will want to read their policy carefully to ensure they understand what is and isn’t covered.

Homeowners insurance is a necessary expense for any homeowner. But shopping for the right policy can feel like a chore—especially for first-time homeowners who aren’t sure how to shop for home insurance. It doesn’t have to be a chore, however. By learning more about homeowners insurance, customers will understand what they’re looking for and be able to make more informed decisions about insurance coverage for their home. Following several steps can help homeowners feel more confident and less overwhelmed when shopping for the best homeowners insurance policy for them (homeowners may want to consider top-rated companies such as Allstate or Lemonade).

STEP 1: Decide what types of coverage you need.

Knowing what to look for in a homeowners insurance policy can be difficult—especially for those who are starting this process for the first time. There are six different types of homeowners insurance coverage that a homeowner must understand in order to decide what to look for when they shop for homeowners insurance.

• Dwelling coverage applies to the main structure of the home, along with attached features such as garages, fences, or decks. It provides coverage in the event of damage or losses from covered perils, which can include hail, fire, wind, vandalism, and theft, among others. Dwelling coverage does not apply to losses caused by poor maintenance, damage caused by insects or animals, or general wear and tear.
• “Other structures” coverage protects structures that are not attached to the house, such as unconnected garages, storage units, sheds, swimming pools, fences, or play gyms in the backyard.
• Personal property coverage can help reimburse the homeowner if personal items are damaged or destroyed by a covered peril (although policy limits apply for certain categories such as jewelry, electronics, musical instruments, sports equipment, and others). 
• Loss of use coverage can help the policyholder pay additional living expenses while their home is being repaired as part of a covered claim. As such, it can cover the cost of temporary housing, such as a hotel room or short-term leave, and even food and transportation costs above what a policyholder would normally incur while living in their home.
• Personal liability coverage comes into play if a homeowner, their family, or their pets are found legally responsible for causing property damage or physical injury to someone else. It pays for defense costs and any assessed damages related to the covered incident to satisfy the judgment. 
• Medical payments coverage can help pay for treatment of accidental injuries that happen to a non-resident of the home. For instance, if a guest trips and falls in the home, the medical payments coverage would help cover that person’s medical bills up to the policy limits, which is usually around $5,000 at the high end.

STEP 2: Familiarize yourself with reimbursement methods and deductibles.

Homeowners will also want to familiarize themselves with the different ways a homeowners insurance policy can pay out a claim. The three main reimbursement methods are actual cash value, replacement cost coverage, and extended replacement cost coverage.

• Actual cash value is the least expensive option. In the event of a claim, the insurance company will reimburse the policyholder for the depreciated value of their home and belongings, less the deductible and up to the policy limits. It’s common for personal property coverage to fall into this category, while it’s less likely for dwelling coverage to work this way.
• Replacement cost coverage is another option—some companies offer this as their standard policy for dwelling coverage, but others offer it as an upgrade. It’s a bit more expensive, but in the event of a claim, the insurance company will pay out the cost in today’s market to repair the home and replace personal items up to the policy limits. For example, if the homeowner purchased a TV 6 years ago for $400 and a similar TV today costs $800, the insurer would pay out $800, less the deductible.
• Extended replacement cost coverage covers the replacement cost value to repair, replace, or even and rebuild the entire home, even if it goes above and beyond the policy limit. This level of coverage can be helpful if the home is affected by a larger-scale disaster, such as a wildfire—construction costs can soar because of high demand, and without extended replacement cost coverage, the homeowner may need to pay more out of pocket to repair their home.

Homeowners will also want to make sure they understand deductibles. A deductible is the amount of money a policyholder is responsible for when filing a claim. For example, if a homeowner has a $1,000 deductible and files a $5,000 claim on their dwelling coverage, the $1,000 will be deducted from the claim amount and the insurance company will pay the remaining $4,000 once the claim is approved, up to the policy limits. 

Deductibles apply to dwelling, other structures, and personal property coverage, while loss of use, personal liability, and medical payments coverage generally do not have deductibles. Homeowners can choose to increase their deductible in exchange for a lower insurance premium, but they’ll end up paying more out of pocket if they file a claim. Conversely, those who increase their deductible will pay a higher premium but less out of pocket if they need to file a claim.

STEP 3: Determine the amount of coverage you need.

One of the first questions a homeowner may have is, “How much homeowners insurance do I need?” The answer depends on several factors. To get accurate homeowners insurance quotes, homeowners will need to gather some information and do a little math on their own. First, they’ll need to determine the square footage of their home. This can be found in the purchase contract, in the real estate listing, or from the town’s assessment office. When a customer seeks quotes for homeowners insurance from potential insurers, they’ll use this information to determine a rough replacement cost for the structure. However, homeowners can also do a little research into the local cost of building per square foot in their town. They’ll want to multiply the square footage of the home by the per-square-foot building cost to get a rough estimate of how much it would cost to rebuild their home. Homeowners can also use an online dwelling coverage calculator to get a rough estimate of the amount of insurance they need for their home before talking to an insurance agent and getting a more detailed quote.

Next, homeowners will want to do an inventory and rough valuation of their personal possessions, including furniture, clothing, and appliances. There are several apps and websites that can help a homeowner build a complete list that is easy to maintain, or homeowners can work with an insurance agent. Alternatively, they can use a homeowners insurance calculator to determine how much personal property coverage they need. The more detail a homeowner provides on their inventory, the better their chances of reimbursement are in the event of a claim. Homeowners can also take photos and videos of their possessions and upload this information to the cloud so they can use it if they need to file a claim once they’ve taken out an insurance policy. Especially for furniture and high-value items, noting the purchase date and cost and including receipts the homeowner has will bolster their case for the items’ value if they need to file a claim.

STEP 4: Consider which add-ons or endorsements you might need.

Although a homeowners insurance policy can cover many different perils, there are some things that are not typically covered. The two biggest examples are floods and earthquakes, meaning a homeowner will need to take out separate policies if they want coverage from these perils. Those who live in a flood-prone area may even be required by their mortgage lender to have a policy from one of the best flood insurance companies. Meanwhile, those who live in areas with a lot of seismic activity, such as California, may want to consider purchasing a policy from one of the best earthquake insurance companies.

Beyond flooding, there are other types of insurance for certain types of disasters that might not be included on standard homeowners policies. Common types include earthquake insurance, coverage for landslides and land movement, and even mold coverage. While volcano coverage is often part of basic homeowners insurance policies, the damage covered may be more limited and homeowners who live near an active volcano, such as residents of Hawaii, might want to consider additional coverage. For instance, while a basic plan might cover initial damage from ash, dust, and lava flow, it might not cover events after the fact such as ash carried by winds, shock waves, or tremors. Additionally, a mortgage lender may also require that homeowners carry flood or earthquake coverage if they are in high-risk areas for these events.

If homeowners have certain high-value personal property, they may want to talk to their insurance agent about purchasing additional coverage. Since there are policy limits for certain categories, oftentimes coverage is broader with an endorsement. 

STEP 5: Gather and compare multiple quotes. 

Once a homeowner knows the types and amounts of coverage they need, they can begin to search for companies and request quotes. A good place to start is with the insurer they already have for auto or renters insurance, if applicable. Homeowners can also ask family and friends for recommendations. Once they’ve identified a handful of companies, they can begin requesting quotes over the phone or online—between three and five quotes is ideal. Insurers will ask for information such as the address of the home being insured, the age of the home (and in particular the roof), and the presence of any additions such as a pool to provide a tailored quote.

Homeowners will want to provide the same information to each company—it’s advisable for them to have the info written down in front of them when they talk to agents. As homeowners gather quotes, they’ll want to opt for the same deductible and coverage limit to ensure a fair comparison. Each quote will include the premium, the deductible, and the level and amount of coverage, along with coverage limits. From there, homeowners can look into available discounts. The most common is a bundling discount where the policyholder pays a reduced premium if they have multiple policies under the same insurer. Homeowners can also check to see if there is a home insurance discount for security systems, as many insurers give discounts for customers with professionally monitored security systems. 

STEP 6: Choose a policy and read the terms carefully.

Once the homeowner has a range of quotes, they can review homeowners insurance costs and coverage limits of each policy to determine which one best suits their needs. It’s inadvisable for a homeowner to choose a cheap homeowners insurance policy solely on the cost—that cheap policy may not have adequate coverage or may have more exclusions than the homeowner expects. In addition to considering costs, homeowners will want to read the language of the policy closely to ensure they understand exactly what is and isn’t covered by their chosen policy.

One of the biggest mistakes people make when buying a homeowners policy is not reading it closely. Few things are more upsetting after a disaster than learning that something a homeowner thought was covered is not—or paying out of pocket for a repair they assumed wasn’t covered, only to find out too late that they could have filed a claim.

Homeowners insurance is a smart purchase—and it’s often a requirement by mortgage lenders. But shopping for homeowners insurance coverage can seem daunting. Homeowners who educate themselves on how to shop for homeowners insurance before beginning their search will have a much easier time finding the right coverage. This information can also help when homeowners re-shop for coverage each year before their policy expires to ensure they’re getting the coverage they need at the best price.