How to Find the Best Insurance for First-Time Homebuyers

Most first-time homebuyers must have insurance in place before closing on their new home, as required by their mortgage company. It is critical to begin shopping as soon as you have a signed contract in order to have enough time to compare quotes from at least three different companies.

The amount of insurance you require is determined by the type of home you are purchasing, the value of your belongings, and a variety of other factors. Before compiling quotes, it's critical that you understand the amount of coverage you require so that you can make direct comparisons and choose the best policy for you.

Do first-time home buyers need homeowners insurance?

If you are taking out a mortgage, as most first-time homebuyers do, you will most likely require homeowners insurance before closing on your new home. Because mortgage companies require borrowers to purchase homeowners insurance to protect their investment in your home, this is the case.

• If you are not using traditional financing, you will not be required to provide proof of insurance; however, this does not mean you should not have it. A homeowners insurance policy will protect you from significant financial loss if something happens to your home or belongings, or if a visiting friend or family member is injured on your property.

How soon before closing should I get homeowners insurance?

Most lenders will require proof of insurance in the form of a binder at least three days before closing on your new home. A binder is a legal document signed by your insurance company promising to insure your new home as soon as you close.

Insurance binders are good for 30-90 days, so you can get your policy in place much sooner than the three-day deadline.

• Make certain that your binder does not expire before your closing date, when the insurance company will issue you a permanent policy. If your binder does expire, contact your agent to request an updated copy.

Insurance coverage for first-time homebuyers

When purchasing homeowners insurance for the first time, it is critical to become acquainted with the coverage that your policy will provide. Here are a few examples of how homeowners insurance can protect you:

• Dwelling coverage protects the structure of your home from perils such as fire, theft, and vandalism.
• Personal property insurance protects your possessions, such as furniture, jewelry, and electronics.
• Other structures coverage protects outbuildings on your property, such as a detached garage, shed, or pool house.
• Personal liability insurance protects you as a homeowner from lawsuits for property damage or bodily injury for which you are held liable.
• Medical payments coverage will pay for the medical bills of a visitor or employee who is injured in your home.
• Additional living expenses coverage will pay for the cost of staying in a hotel or renting a home while your house is being repaired.

Furthermore, your policy may include a list of covered perils, such as fire, theft, and vandalism, depending on the type of insurance you have.

Knowing what your policy does not cover is just as important. Some first-time homeowners may require additional insurance policies.

• Flood insurance is required for many coastal homes to protect them from rising water caused by storms. Even if your home is not in a flood zone, you should think about getting a policy because flooding is not covered by most homeowners insurance policies.
• If your new home is near a fault line or your area has a history of earthquakes, purchasing earthquake insurance is a must.
• High-value personal property, such as expensive jewelry, artwork, and electronics, may be excluded from standard insurance policy limits. We recommend adding additional coverage in the form of scheduled personal property coverage to protect these items. To determine the value of your belongings, you'll need to provide proof of purchase or appraisals.
• For first-time homebuyers, the cost of performing routine home maintenance or replacing major appliances can be overwhelming. For a small service fee, home warranty policies cover your appliances, heating and cooling systems, plumbing and electrical maintenance, and more.

How much homeowners insurance do I need?

The amount of insurance you require is unique to you and your new home. The following are the most important features to look for in a home insurance policy:

Dwelling insurance

Dwelling insurance is designed to cover the cost of rebuilding your home in the event of a total loss. It is not the same as the cost of your new home. Your lender will require a certain level of coverage. However, in order to estimate the replacement cost of your home, you must first research local building costs.

Personal property insurance

Personal property insurance is typically insured for 20% to 50% of the dwelling coverage, so take inventory of your belongings to ensure that your policy provides adequate coverage to replace your furniture, clothing, and other valuables. You should also consider whether your policy covers replacement cost or actual cash value for your items. The insurance company will assist you in replacing your items with new ones with replacement cost, whereas actual cash value considers what your items were worth at the time of the loss event.

Other structures

Other structures coverage extends to any structures on your property that are not attached to your home, such as sheds or detached garages. Check to see if the amount listed in your policy is enough to rebuild these structures, if you have them.

Liability insurance

Consider the potential hazards that your new home presents, such as a pool or trampoline, when determining the appropriate liability and medical limits for your policy. If you frequently entertain or have a dog, we recommend increasing your liability and medical limits to protect yourself and your guests.

Additional living expenses

Consider the cost of temporary living arrangements in your area. Additional living expenses coverage can be used to cover the cost of a hotel or rental house while your home is being repaired. Consider your family's needs — some homeowners can make do with a small hotel room while home repairs are being made, but a family with work-from-home parents will most likely require a larger rental home.

How to shop for homeowners insurance

After determining how much insurance you require, you can begin looking for the best home insurance for first-time homebuyers.

Step 1: Compile a list of companies that offer homeowners insurance in your area

Your realtor will be able to recommend a few agents they know and trust. Remember that these are people with whom they have a long history, and they may not be a good fit for you and your new home.

Look online for the best homeowners insurance companies in your area, and ask family and friends for recommendations. In addition, if you already have renters or auto insurance, see if your current provider offers homeowners insurance. You should be familiar with its customer service and possibly even its claims process because you are already a customer.

Step 2: Research ratings

J.D. Power and the National Association of Insurance Commissioners (NAIC) complaint index can provide insight into how different insurance companies perform when customers need to file a claim. This can help you avoid having to deal with payout issues when you need to use your policy.

Furthermore, insurance companies are given financial stability ratings, which assess how well they can withstand significant catastrophic losses that affect a large number of their clients. Visit AM Best, Demotech, Standard and Poor's, Moody's, and Fitch, and narrow your list to companies with an A or higher rating.

Step 3: Compile quotes

Next, contact your top choices to find out how much their homeowners insurance policies cost. Before you call, make sure you have the following information on hand:

• Personal data, such as your Social Security number and driver's license number
• Property address
• Construction details such as square footage, roof age, and building materials
• Sprinklers and alarm systems are examples of safety features.
• The type and extent of coverage required

Even for first-time homebuyers, many insurance companies offer discounts and savings opportunities. The following are some of the most common discounts:

• 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

When you've collected all of the quotes, it's time to compare them. When purchasing homeowners insurance for the first time, keep in mind that the cheapest policy isn't always the best policy. Check that each quote includes enough coverage to meet your needs.

How much should homeowners insurance cost?

It can be difficult for first-time homebuyers to determine how much home insurance they should purchase. Homeowners insurance costs an average of $1,445 per year. Prices, however, differ from one state to the next. We calculated the average annual premium for each state using thousands of homeowners insurance quotes. The table below summarizes our findings, ranging from the most expensive to the least expensive states for home insurance.

Individual state averages are based on the median home value in each state, which we used as an approximation of the cost to rebuild the home.