Walking through the door of your new home is an exciting milestone. But the steps it takes to get there—inspections, negotiations and financial preparation—can be exhausting. Don’t worry! Soon enough, you’ll unlock the door to your new home, clutter the floor with packing peanuts, argue over what you “forgot” to pack and fill it with new memories. But before you get your keys, you’ll need to discuss purchasing homeowners insurance.
Homeowners policies are often complex and written in language that can be difficult to comprehend. So, it’s easy to get lost in the details, sign up for whatever sounds okay and hope for the best—and you’re not alone. According to a 2013 survey, 60 percent of homes in the United States are underinsured, and the average homeowner would need to foot the bill for 17 percent of rebuilding costs. For many, this means making sacrifices and not being able to rebuild their home to its former glory.
It’s important to understand the basics of homeowners insurance so you can purchase a policy that meets your needs. A standard policy provides coverage to protect you from the expense of a dwelling, personal property or liability loss. Your insurance will also cover other structures on your property, like a fence or detached garage. And if your home becomes uninhabitable, Loss of Use will cover additional costs to maintain your normal standard of living, including living accommodations, food and transportation.
Simple enough, right? Now that you have a basic understanding of what’s in a standard policy, here are seven tips to keep in mind when purchasing insurance for your new home.
Insurance tips for first-time home buyers
- Research before you buy
Know what you’re getting into and what risks are involved before purchasing a house. A good place to start is the Comprehensive Loss Underwriting Exchange (CLUE) report for the property. CLUE reports will tell you the claims and losses on the home for the past seven years. Also, research the location and look into aspects that can affect your premium, such as the neighborhood crime rate and distance to a fire station.
- Know the difference: replacement cost vs. market value
Your insurance will traditionally be based on the replacement cost of your home. Replacement cost is the cost to rebuild your home with similar type and quality materials. You’ll want to be sure that this amount is enough to cover a total loss. A market value policy only covers up to the current cash value of your home. The cost of clearing debris and rebuilding your home will most likely be greater than its cash value, so a market value policy will only cover a portion of these expenses.
- Fill in coverage gaps
Every policy has exclusions, and it’s important to fill in coverage gaps that can affect your unique needs. For example, flood, earthquake and back-up sewer damages aren’t typically covered in a standard policy. If you’re anticipating any of these issues, it may be wise to add additional coverage.
You also may want to consider adding extended replacement cost coverage for your dwelling or an umbrella policy for liability coverage. These broader policies set a limit above the amount of coverage you receive from your typical homeowners policy.
- Bundle up
Often, insurance companies will offer a discount on one policy if you also purchase additional policies, such as auto or life insurance, with their company. This practice is called bundling and can potentially help you save money on your premium.
- Be smart about filing a claim
Filing a claim is an essential step to recovering from a loss. And there are many things you can do to create an easier and more effective claims process. First, keep good records. Document important conversations and save receipts and contracts. Also, keep a good inventory of your home—you can even use an app or a website to keep track of your items digitally.
When the time comes to report a claim, be sure you have all of this information plus other specifications about your home on hand and ready to pass along. Then, file quickly. Insurance providers have varying amounts of time allotted to report a claim. Be sure to file within these time limits to ensure that your loss is covered.
- Keep up-to-date
Review your policies every year. Changes to your home and even your neighborhood can raise or lower your premium. If you’ve made an addition to your home, such as a finished basement or swimming pool, you’ll want to increase your policy so that, in the instance of a large property or liability loss, you’re not underinsured.
On the other hand, if risks have been reduced, your premium could decrease. Additions to your home, such as a new roof, burglar alarm, fence or pool cover, can reduce risk and potentially lower your premium.
- Talk to an expert
The best way to determine your coverage needs is by speaking with an independent agent. Your agent will review your situation, house and location to make the best policy recommendation for you. Your agent can also explain the details of your policy and optional coverages you may want to add.