How to Buy Home Insurance: The Essential Guide for Homeowners

Your home is likely the biggest investment you’ll ever make, so you need the right homeowners insurance policy to protect it. If you took out a mortgage to finance the purchase, most lenders require you to buy home insurance to protect their investment in the property.

In this guide, we cover what you need to know about buying home insurance, including how to compare quotes, how coverage works, and factors that can affect your rate.

Step-by-Step Guide to Buying the Right Home Insurance Policy

The process to buy the right home insurance policy can sometimes feel overwhelming — especially if you’re a first-time homeowner. So we rounded up this step-by-step guide to help you find the right coverage at an affordable price point.

1. Understand your needs and risks

2. Gather necessary information

3. Get multiple quotes

4. Compare policies and understand the fine print

5. Choose your deductible wisely

6. Consider bundling your insurance policies

7. Purchase your policy and understand your payments

Step 1: Understand your needs and risks

Your coverage needs can vary widely depending on your home’s location. For example, homeowners living in areas prone to hurricanes, flooding, or earthquakes may need higher policy limits or buy additional coverage, like flood insurance.

Before you start shopping around for insurance, you also need to know your home’s replacement cost. This is the actual cost of building your home, and it may be different from its market value. You should also think about any high-value items, like jewelry, art, or electronics, that may require additional coverage or a separate endorsement.^[1]

Step 2: Gather necessary information

Gathering the right information before you start shopping can save you a lot of time. Most insurers will want to know:

• Your home’s square footage, age, and construction type

• The condition and material of your roof

• Details about safety features, like smoke detectors or a security system

• Your claims history

The more accurate the information you provide, the more closely your quotes will reflect the coverage and price you’re likely to receive.

Step 3: Get multiple quotes

Since so many factors affect home insurance rates, quotes can vary significantly from one insurer to the next, even for the exact same coverage. That’s why we recommend comparing quotes from multiple national and regional insurance companies.

Using an online comparison tool can help you quickly compare quotes from multiple insurers with only a single application. Or you can work with an agent if you prefer more personalized guidance. Some agents only work with a single insurance company, while independent agents can help you get rate quotes from all the companies they work with.

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Step 4: Compare policies and understand the fine print

Cost is an important factor when comparing policies, but the cheapest homeowners policy may not always be the best for your situation. Look at the fine print carefully to make sure you understand the types of coverage each insurer offers. Review policy limits, deductibles, exclusions, and available add-on coverage options closely, plus any discounts that could help lower your rate.

It’s also a good idea to check out online reviews to see what policyholders have to say about a company’s customer service and claims management experience. Third parties like AM Best, Fitch Ratings, and S&P Global can provide information on financial stability, which can be a good indicator of a company’s ability to pay claims.

The following table shows average home insurance rates from top insurers for $300,000 of dwelling coverage, based on Compare.com data.

The below national rates are estimated rates current as of: Monday, August 10 at 5:00 PM PDT. 

Company	Average Annual Premium
Grange	$1,356
CSAA	$1,404
Amica	$1,572
AIG	$1,728
Westfield	$1,800
National General	$1,944
USAA	$2,004
American Family	$2,184
AFI	$2,220
Foremost	$2,472
Mercury	$2,472
Allstate	$2,484
Travelers	$2,496
ASI	$2,556
Farmers	$2,748
State Farm	$2,796
Auto-Owners	$3,036
Encompass	$3,252
Nationwide	$3,324
Erie	$3,360
Country Financial	$3,528
Chubb	$3,672
Allied	$3,948
Metropolitan	$4,296
Shelter	$4,308

We sourced this data by analyzing real quotes from Compare.com's 100-plus partner insurance companies alongside rate filings collected and distributed by Quadrant Information Services. Actual quotes may vary. Data updated on Monday, August 10 at 5:00 PM PDT.

Step 5: Choose your deductible wisely

A deductible is the amount you pay out of pocket before your home insurance kicks in. In general, choosing a higher deductible will lower your monthly premium, while a lower deductible means you’ll pay more each month.

A good rule of thumb is to choose the highest deductible you could comfortably afford to pay out of pocket in an emergency. Just make sure that amount is something you could realistically cover if you needed to file a claim.

Step 6: Consider bundling your insurance policies

Bundling your home and auto insurance with the same insurer is one of the easiest ways to save money. Most major insurers offer a discount when you combine policies. For instance, you could save up to 25% by bundling your home and auto insurance with Allstate.

Plus, bundling your policies offers added convenience because you only have one insurer to deal with and can manage all your policies together.

Step 7: Purchase your policy and understand your payments

Once you’ve chosen a policy, you can typically purchase it online, over the phone, or through a local agent, depending on the insurer. If you have a mortgage, your mortgage lender will likely require proof of homeowners insurance coverage before closing, or whenever you switch policies.

Many homeowners pay their insurance premiums through an escrow account. Your lender collects a portion of your annual premium each month as part of your mortgage payment and pays the insurer on your behalf.^[2]

Shopping Tips for First-Time Home Insurance Buyers

The best time to shop for first-time home insurance is after you’re under contract. This gives you enough time to find your lender insurance requirements, understand your insurance needs, compare quotes, and buy a policy to have in place before closing.

Then, it’s a good idea to review your policy every year and shop around for quotes. This can help you make sure you’re still getting the best price and coverage you need.

Common mistakes to avoid

Here are the biggest mistakes to avoid when shopping for home insurance:

• Underinsuring your home: One of the most common mistakes homeowners make is insuring their home for its market value rather than its replacement cost. If a covered peril destroys your home, you’ll need enough coverage to rebuild or replace it, which can cost significantly more than what you originally paid for it.^[3]

• Overlooking exclusions: Most standard policies exclude damages from things like flooding, earthquakes, and sewer backups.^[4] Read the fine print carefully, and consider adding endorsements for any risks that are common in your area.

• Choosing a deductible you can’t afford: Selecting a high deductible to lower your premium can backfire if you can’t afford to pay it when you file a claim. Make sure your deductible is an amount you can realistically cover out of pocket.

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Key Components of a Homeowners Insurance Policy

An HO-3 policy is the most common type of homeowners insurance and includes the following six types of coverage:^[5]

• Dwelling coverage (Coverage A)

• Other structures coverage (Coverage B)

• Personal property coverage (Coverage C)

• Loss of use coverage (Coverage D)

• Personal liability coverage (Coverage E)

• Medical payments coverage (Coverage F)

Dwelling coverage (Coverage A)

Dwelling coverage protects the physical structure of your home if it sustains property damage from a covered peril, like fire, wind, or hail. It’s important to insure your home for its full replacement cost, which is what it would cost to repair or rebuild it.

Other structures coverage (Coverage B)

Other structures coverage protects detached structures on your property, like a fence, detached garage, or shed. This coverage is typically 10% of your dwelling coverage limit, so if you have $300,000 in dwelling coverage, you’d have $30,000 in coverage for other structures.

Personal property coverage (Coverage C)

Personal property coverage protects the belongings inside your home if someone steals them or a covered event damages them. Most policies come with two coverage options: actual cash value (ACV) or replacement cost coverage (RCV). The ACV pays for what those items are worth today after depreciation, while RCV pays what it would cost to replace them at current prices.

Loss of use coverage (Coverage D)

If your home becomes uninhabitable after a covered loss, loss of use coverage, also called additional living expenses coverage, pays for your living expenses while the home undergoes repair. This may include hotel stays, meals, pet boarding, and other costs you may have until your home is rebuilt (up to your policy’s time and dollar limits).

Personal liability coverage (Coverage E)

Personal liability coverage protects you if a court finds you legally responsible for injuring someone or damaging their property. For example, if a guest slips and falls in your home and sues you, this coverage can help pay for legal fees and any damages awarded, up to your policy limit.

Limits usually start at $100,000, so it often makes sense to buy an umbrella policy for more liability protection.

Medical payments coverage (Coverage F)

Medical payments coverage pays for minor medical expenses if someone sustains an injury on your property. Instead of going through the legal system, your healthcare provider will submit your medical bills directly to your insurance.

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Factors That Influence Home Insurance Costs

The average cost of home insurance varies widely depending on the insurance company and several other key factors like where you live, your credit history, and the type of coverage you choose.

Here’s what you need to know about factors that can affect your rates:

• Your home’s location and characteristics: Where you live plays a big role in how much you pay for homeowners insurance, since insurers consider things like your local weather risks and crime rates. Your home’s age, size, construction materials, and roof condition also affect your rates, since older homes or those with outdated systems can be more expensive to repair or rebuild.^[6]

• Your credit and claims history: In most states, insurers can use credit-based insurance scores to help determine your premium, and homebuyers with higher scores typically pay less. Filing previous claims can also raise your rates, since insurers view a history of claims as an indicator of future risk.

• Your deductible: The deductible you choose directly affects your monthly premium. A higher deductible means lower premiums, while a lower deductible means you’ll pay more each month. Choosing the right deductible is about finding the balance between what you can afford to pay monthly and how much you can cover out of pocket if you have to file a claim.^[7]

• Additional riders and endorsements: Adding extra coverage, like flood insurance or higher limits for valuables, increases your premium. While these add-ons raise your costs, they can provide important protection for risks that a standard policy doesn’t cover.

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