Here are the steps for property owners to take when buying homeowners insurance.
1. Determine the coverage they need
It is important to understand exactly what kinds of protections should be put in place when buying homeowners insurance. Homeowners typically require:
- Dwelling coverage to protect the dwelling
- Other structures coverage to protect other structures on the property, such as sheds and freestanding garages
- Personal property coverage to protect their possessions
- Loss of use coverage to pay for costs if displaced from a home
- Liability coverage to pay for losses caused to others
Homeowners should also consider whether they want open peril coverage, which pays for losses caused by any cause that isn't specifically excluded, or named peril coverage that pays only for losses by specified causes.
Many people in dangerous parts of the country will need to obtain additional coverage not offered as a part of standard homeowners policies, such as sinkhole coverage, earthquake coverage, or flood insurance.
2. Decide on a deductible
Homeowners must pay a deductible out of pocket when making a claim. A deductible could be as low as a few hundred dollars or as high as a few thousand dollars.
A policy with a low deductible has higher premiums, but homeowners will pay lower out-of-pocket costs in the event of a claim. A policy with a high deductible has lower premiums, but the homeowner will have to pay more in the event of a covered loss.
Homeowners should consider the size of their emergency fund, as well as whether they would prefer to pay more to transfer additional risk and limit unexpected costs.
3. Obtain multiple home insurance quotes
Homeowners should obtain at least three to five insurance quotes once they have determined what coverages they need. This can help to ensure they are getting the best price.
It's quick and simple to obtain insurance quotes online from most insurers. Homeowners can also choose to work with an agent. It is important to find an independent agent that has relationships with multiple insurers, as this will enable a homeowner to compare multiple companies. Agents who work for a single insurer can only provide information on that insurer's policies.
When comparing quotes, remember this is just an estimate and the actual amount of premiums due may change after a formal application is submitted.
4. Compare apples to apples
When comparing quotes, homeowners need to ensure they are comparing similar offers from different insurers. This involves considering:
- The types of coverage
- The policy limits
- Whether the coverage is replacement value coverage (and will pay to replace property) or market value coverage (and will pay only what the property is currently worth)
- Add-ons or riders
- Whether the policy is an open peril or named peril policy
- What riders or add-on coverage is included
- The deductible
If a policy is more expensive but offers far more comprehensive coverage with a lower deductible, that policy could actually be the better deal. That's why it's so important to make sure quotes that are being compared offer a similar level of coverage.
5. Check to see if bundling coverage is worthwhile
Homeowners can often save by bundling insurance coverage. This means buying multiple policies from the same carrier, such as buying both home and auto insurance. Savings for bundling can be as high as 25% with some carriers.
However, this doesn't always mean that bundling is cheaper, especially if one insurer charges significantly higher rates for a specific kind of coverage such as homeowners insurance in a high-risk state. Consumers should get quotes for both bundled and separate coverage from different insurers to see what will provide the best price overall.
Consumers should also research the insurer's reputation for customer service and claims handling for all types of insurance that would potentially be bundled. That's because some insurers excel in providing a particular type of coverage, but offer substandard customer service with other policy types.
6. Research discounts available
Many discounts could be available when purchasing home insurance, including savings for avoiding claims for a certain number of years, working in a specific profession, membership in specific organizations, or working for a particular employer.
Having certain safety devices installed, such as an alarm or sprinkler system, could also result in reduced premiums.
Homeowners should research discounts different insurers offer, so they can see which provides the lowest price coverage after all their savings is applied.
7. Check the insurer's reputation
The purpose of insurance is to provide protection against loss. No homeowner wants to face a problem getting a claim paid. As a result, it is important to check the reputation of the insurer.
When buying coverage, consumers should review the database of the National Association of Insurance Commissioners to check how many complaints have been received for a particular company. It's also helpful to look at J.D. Power customer satisfaction ratings to see how satisfied customers generally are with particular home insurance companies.
8. Consider the insurer's financial strength
It's important that an insurer be financially sound so it can pay out claims promptly even in the event of a large-scale disaster. AM Best and Standard & Poor ratings offer insight into whether an insurer is financially sound.
9. Read the fine print
Finally, homeowners should read the fine print on their insurance policy when purchasing coverage.
It is important to understand what losses are covered, what is excluded, and whether any special policy limits apply. For example, many insurers limit coverage of jewelry or weapons or art or furs to $1,500, so those who have large gun collections or expensive jewelry or other specialized collections may need to buy add-on coverage.
By carefully reviewing a policy, a homeowner can make sure they have the coverage they need before disaster strikes and they are left without the financial support they need to rebuild.
