A beginner's guide to buying home insurance

Home insurance is one of the smartest investments every person who owns a piece of real estate should make. Here’s a homeowners insurance guide and what you should expect as a first-time homeowner. (iStock)

Homeowners insurance isn’t an option — it’s a necessity. Nearly all mortgage lenders require borrowers to purchase homeowners insurance before financing a residential real estate transaction.

Insurance can be complicated. Homeowners need to be prepared and make sure they are adequately insured. Here’s a buyer's guide for first-time homeowners on the basics of home insurance and finding the plan that offers the right insurance coverage for you.

If you’re shopping for home insurance, visit Credible to get more insurance tips and explore insurance rates and policies from their partners. 

DOES YOUR HOMEOWNERS INSURANCE COVER EMERGENCIES?

What should I look for when buying homeowners insurance?

Buyers can adjust their insurance policy to fit their insurance coverage needs. When buying homeowners insurance, you should have enough coverage to:

​If you’re shopping for home insurance or think you need additional coverage, you can compare homeowners policies and insurance quotes for free on Credible.

DOES HOME INSURANCE COVER NATURAL DISASTERS?

What does homeowners insurance cover?

Here are the different types of coverage from a standard home insurance policy:

1. Dwelling 

Dwelling coverage helps rebuild or repair the home’s structure if damaged by a covered event. Dwelling coverage should equal the cost to replace your home. This can be calculated by speaking with an insurance agent or an appraiser.

2. Personal property

This applies to everything in your home besides the structure itself if your personal belongings are destroyed, vandalized, or stolen. 

You should have enough coverage to replace all of your belongings. This can be calculated by keeping a home inventory of everything you own and their actual cash value. More expensive items may also require additional coverage.

3. Liability

Liability coverage covers you against lawsuits for injury or property damage caused by you, family members, or pets to other people. Common liability claims include:

  • Dog bites
  • Intoxicated guests
  • Accidents
  • Falling trees
  • Injured domestic workers

No-fault medical coverage is also included. This covers the medical expenses of guests injured on your property.

HOW TO GET THE BEST HOMEOWNERS INSURANCE POLICY FOR YOUR NEEDS

4. Additional living expenses

If your home is uninhabitable, additional living expenses will cover your temporary displacement such as hotel bills and eating out. 

There are also different types of homeowners insurance for various property types and insurance coverage needs. This includes:

Obtaining and comparing insurance quotes is important, but it can take time. With Credible's partners, ​you can eliminate the time-consuming part of your search​.

WHAT'S THE DIFFERENCE BETWEEN HOME WARRANTY AND HOMEOWNERS INSURANCE?

What is not covered by most homeowners insurance?

Homeowners insurance covers the structure of your home, the contents within it, and offers liability protection during unexpected events. However, it doesn’t cover everything. 

These six things are not typically covered by homeowners insurance:

Make sure to review your insurance coverage and understand its limitations. If you think you need additional coverage, head over to Credible to review other homeowners insurance policies and get free quotes.

What is the 80% rule in home insurance?

The 80% rule in insurance means the insurer will only fully cover the cost of damages if the homeowner has purchased at least 80% of the house’s replacement value. 

If it’s under this percentage, the amount paid by the insurance company will be relative to the amount of coverage purchased. 

Improvements and inflation affect the value of the property and the 80% rule. It’s recommended that homeowners periodically review their home insurance policy and their home replacement value. 

DO YOU NEED HOMEOWNERS INSURANCE?

Home insurance rates and ways to cut costs

The cost of homeowners insurance largely relies on your home, where you live, coverage amount, and your insurer. The average annual homeowners insurance premium is $1,211 with Louisiana having the highest at $1,967 and Oregon with the lowest at $659. 

There are several ways to lower the cost of your insurance premium:

Again, be sure to shop around and compare your options to find the best deal. To make sure you are not overpaying for homeowners insurance, ​it’s free to check online through Credible’s partners.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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