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Homeowner's Insurance Deep Dive

March 1, 2024


Min Read
Man reviewing paperwork for insurance while sitting on couch in home.

"Why are we talking about insurance in a time like this?”

Homebuying steps like appraising the property and the inspection may be more obvious for this point in the homebuying process, but insurance is right up there. Here’s why we’re dealing with it now, and not closer to closing.




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1. Timing

As soon as the property title is in your name and the keys are in your hands, the property is your responsibility. So, you’ll need to have the property insured from day 1, which can take multiple days and a bit of back and forth. Your insurance agent will take into account things like the type of roof on the home, age of the property, and even proximity to water. This can all take a bit of time, so you wouldn’t want to wait until the last minute.

2. Escrow Accounts

Most homebuyers use an escrow account to pay for things like insurance premiums and property taxes. (This is usually a loan requirement by lenders, but there are exceptions to waive the need for an escrow account. If you don’t have an escrow waiver, you can assume you’ll have an escrow account.) The calculations for your escrow account are set up well before closing, and your insurance payments need to be included.

What to expect when setting up homeowner’s insurance.

  1. Choosing an insurance company. This is your decision to make, and we’ll help you along the way. You can search online and get quotes from multiple agents. We’ll also give you our recommendation to get started.
  2. Getting a home inspection. A huge reason to never waive the inspection on a home is actually for insurance purposes. There may be remedies needed that even the most skilled DIYer can’t fix, and those get sent to insurance. File too many of those claims, and poof your homeowners insurance drops your coverage. So, getting a home inspection helps you identify these things BEFORE buying the house so they can be remedied before possession changes. No insurance claims needed.
  3. Getting everything covered. In addition to the normal questions your insurance agent will ask, don’t forget to mention any additional coverage you may want, like for personal valuables like jewelry, art and electronics. You may even be able to add coverage for major appliances and your HVAC system. You can ask your agent to go over other items people often have insured to get a good idea.
  4. Comparing pricing. If you’re reviewing multiple quotes, make sure to look at the full picture, and not just the flat pricing. There are things you’ll want to consider in the event of ever needing to make a claim, like quality of customer service and general reputation.
It’s a bit of a life hack, but one way to find out about an insurance company’s reputation is to speak with someone who works for a home improvement company, like roofing or HVAC, in your area. If they deal with insurance, they’ll know which ones in your area make the claims process easier, have good response times, and great customer service. After all, is the insurance that great if you have to wait 3 months to get a siding project approved?
  1. Paying your first month’s insurance premiums. This will likely be due at closing, but you’ll know far in advance. Any costs, like insurance premiums due at closing, will be outlined in your loan documents throughout the process.

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Quick tips on choosing the right company and policy.

Here are a few things you can do to make the process easier:

  1. Get Multiple Quotes: Shop around and get quotes from several insurance companies to find the best rates and coverage options.
  2. Read the Fine Print: Make sure you understand what's covered and what's not in each policy, as well as any limits and exclusions.
  3. Don’t Forget Bundling (And Other Discounts): Many insurance companies offer discounts for things like bundling your home and auto insurance, having a security system, or being a member of certain organizations.
  4. Work with a Reputable Agent: A good insurance agent can help you understand your options and choose the right policy for your needs. Getting a recommendation from your lender or trusted friend can be a great start

Types of coverage to understand before getting started.

Homeowners insurance typically covers damage or loss to your home, personal property, and liability in case someone is injured on your property. Here are some of the most common types of coverage you'll find in a homeowners insurance policy:

Dwelling Coverage: Pays to repair or rebuild your home if it's damaged or destroyed by a covered event, such as a fire, hurricane, or other natural disaster.

Personal Property Coverage: Pays to replace or repair your personal belongings, such as furniture, electronics, and clothing, if they're damaged, destroyed, or stolen.

Liability Coverage: Protects you if you're sued for injuring someone, or for damaging their property while on your property. It can cover legal fees, settlements, and judgments.

In addition to these common coverages, you will typically have the option to add-on coverages, such as:

  • Earthquake coverage
  • Water & Sewer Backup coverage
  • Swimming pool coverage
  • Scheduled personal property

We can connect you with an insurance agent to review your needs and any potential coverages that will help protect your home and property.

The “why” behind your coverage costs.

Understanding what goes into the cost of homeowner's insurance allows you to make informed decisions. Here are a few of the most prominent features to determine your premium cost.

Property Factors

  • Location - When you are in the home buying process, the location is one of the key factors. Insurers take into account the area's risk profile. For example, properties in areas prone to floods or earthquakes might attract higher insurance premiums. In contrast, homes in safe neighborhoods could benefit from lower premiums.
  • Age and Condition of the Home - The home's age directly influences the cost of insurance. Older properties, unless well-maintained, are generally seen as high-risk due to possible structural issues or outdated electrical and plumbing systems. Including a thorough property inspection in your process of buying a house could help mitigate these risks.
  • Construction Materials - The materials used to construct your house can influence your insurance premiums. Some materials are more fire-resistant or withstand natural disasters better, which could lead to lower insurance costs. Incorporating this into your home buying tips can significantly reduce long-term expenses.
  • Safety Features - When you're in the market for a new house, it's essential to consider not only the location, size, and price but also the safety features of the property. Installing various safety features, such as fire alarms, burglar alarms, and sprinkler systems, can substantially lower your insurance premiums. Insurance companies view these safety measures as risk-reducing factors, as they significantly decrease the chances of property damage or loss due to fire or theft. By investing in these safety features, you not only enhance the protection of your house and loved ones but also demonstrate to insurers that you are committed to mitigating risks, potentially leading to more favorable insurance rates.

Personal Factors

  • Homeowner's Credit Score - Beyond just securing a mortgage, your credit score also plays a crucial role in determining your insurance premiums. Higher credit scores are generally associated with lower premiums, highlighting the vital importance of maintaining good financial health. Lenders and insurers use credit scores as an indicator of your financial responsibility and trustworthiness, which affects the level of risk they perceive in insuring your house. A higher credit score signals a lower risk, making you a more attractive and less costly policyholder for insurance companies.
  • Claims History - If you have a history of frequent claims, insurance companies might view you as a higher-risk customer, leading to the likelihood of higher premiums. On the other hand, maintaining a claim-free history demonstrates responsible homeownership and could be highly advantageous in securing more affordable insurance rates.

Coverage Factors

  • Replacement Cost - One of the crucial steps in understanding how to buy a house is comprehending your home's replacement cost. The higher the value, the more it costs to ensure. This replacement value—what it would cost to rebuild your house if it was completely destroyed—is a primary consideration for insurance providers when determining premiums. Note this number may be different from the appraised value of the home.
  • Deductibles - An important part of the house buying process is understanding the concept of deductibles. These are amounts you agree to pay out of pocket before the insurance coverage kicks in. Higher deductibles can significantly reduce your premiums, but ensure you can afford the deductible in the event of a claim.
  • Coverage Limits - Setting appropriate coverage limits is a crucial aspect of the home buying process. A lower limit could reduce your premiums, but might not provide enough coverage in case of significant damage. Remember, a well-calculated balance between premiums and coverage is crucial when buying a house.

Now, you’re an informed insurance buyer.

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You know what to expect, know what goes into your coverage costs, and have a few tips in your back pocket for making a great decision. Happy insurance hunting!

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