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New home insurance advice for first-time buyers

13 tips for buying homeowners insurance for the first time

Buying your first home is laden with emotion, from anticipation to information overload. There’s plenty to learn about — from financing and loans to home maintenance and inspections — on top of balancing it all with discovering what you want and need in a home. Add to that buying homeowners insurance for the first time, and you can quickly decide it’s easier to keep paying rent.
You’re not alone — 72% of homeowners don’t understand essential home insurance coverage, according to a Forbes survey.1 Don’t despair. Buying insurance can be simplified. Here’s straightforward advice to get the best insurance for first-time home buyers.

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Know the basics

Homeowners insurance coverage varies depending on the policy you choose. However, most policies provide coverage for you to rebuild your home when the following damage or loss occurs:

  • Your home’s structure, including the physical structure of your house and any permanent fixtures, such as a built-in kitchen. This is dwelling coverage and commonly referred to as Coverage A.
  • Your home’s other structures, such as sheds, barns or detached garages. This coverage is commonly referred to as Coverage B.
  • Personal property, like personal belongings, such as furniture, electronics and clothing. This coverage is commonly referred to as Coverage C.
  • Loss of use reimbursement, for you to live elsewhere while your home is being repaired or rebuilt if it is uninhabitable. This coverage is commonly referred to as Coverage D.
  • Personal liability protection if someone is injured on your property and sues you for damages. This coverage is commonly referred to as Coverage E.
  • Payment for medical expenses if someone is injured on your property regardless of fault is commonly referred to as Coverage F.
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Decode insurance terms

Learning the unfamiliar terms, abbreviations and legal jargon used in the insurance industry can feel like trying to crack a secret code. Even though the insurance vernacular needs deciphering, the terminology describes straightforward principles for ensuring that your new investment is protected in the event of unforeseeable circumstances like storms, fire, water damage and theft. A glossary of insurance terms can support your understanding of your new policy. Understanding what happens behind the scenes when you purchase homeowners insurance can also familiarize you with the process. The best home insurance companies for first-time buyers want to help you. Bottom line: Don’t let the lingo intimidate you.

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Work with an expert

Find a trusted insurance professional to guide you through purchasing your first homeowners insurance policy. If you’re new to the area, ask your realtor to recommend an insurance agent to get you started. Not only can an insurance agent help you understand the language of insurance, but like realtors, local agents are familiar with the area and offer insurance insight through the home-buying process. From recommending certain coverages to reviewing home inspection reports and spotting potential red flags, connect with an insurance professional early in your home search instead of treating buying homeowners insurance as an afterthought.

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Research each home’s claim history

Before you’re ready to purchase insurance, you have to find the perfect home. A home’s claim history can tell you a lot about a home and help you determine if it’s the right one for you. Review the Comprehensive Loss Underwriting Exchange (CLUE) report for any property you’re considering. This database tracks seven years of claim history for individual properties. What is in this report can affect insurance costs and coverages for your future place. You’ll get a firsthand look at anything that may have occurred to the home or on the property that the current homeowner may not disclose.

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Understand how your credit rating affects insurance (not just loans)

You probably know that your credit score directly impacts your ability to secure a loan, specifically with a mortgage lender. But did you also know that insurance companies often use credit scores when quoting homeowners insurance? Some insurance companies use your credit score as a predictor for the likelihood of filing a claim, and claims drive costs up, which can directly affect your premium. Know that keeping a healthy credit score affects more than just interest rates and your ability to secure a loan, so even after you have the approval letter from your bank, it’s a good idea to maintain a healthy credit score.

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Know the difference between replacement cost and market value

When you’re buying a home, you’ll evaluate the fair market value for each property you consider. It’s how you assess how much to offer for the house you ultimately want to make a home. Believe it or not, the market value of your new home matters little to your future insurer. Instead, the replacement cost determines insurance premiums. Replacement cost is an estimate for what it would take to rebuild your house in today’s market. Replacement costs are accounted for under Coverage A in a homeowners insurance policy. Understand the difference between market value and replacement cost as you navigate securing homeowners insurance for your new property.

Evaluate Individual Property risks

Evaluate characteristics that impact homeowners insurance

Is your potential new home close to a fire department? Are you considering a coastal community? If so, how far are you from the beach? How old is the home? What age and condition is the roof in? What is the crime rate in the area you’re considering? Is the home in a flood, wildfire or earthquake zone? Is there a pool, hot tub or trampoline on the property? These are all factors affecting insurance premiums. While some of these features might be nice to have in a new home, they can increase the cost of your homeowners insurance, and it’s good to know these things before you purchase a home.

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Look for coverage gaps

A standard homeowners insurance policy provides baseline coverage to safeguard your home, one of the significant investments most people make. Think of it as a one-size-fits-all approach to protecting your home. With most policies, you’ll want to make minor adjustments to ensure your needs are met, like changing the deductible or modifying the liability coverage.

You also may want to add coverage to account for gaps left from a standard policy. Flood insurance is an example of an additional coverage you may want to add. If you have expensive jewelry or collections, consider a rider (aka endorsement) to protect these items as well. Service line coverage can help with the potential costly expense of resolving issues with underground water, cable and power lines.

Often, insurance policies have exclusions. Get into the detail and understand what is covered and where exclusions may apply. If there’s an omission you’re uncomfortable with, for instance, water/sewer backup or wind-driven rain, your insurance professional can help you find the right solution to provide the coverage you desire.

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Shop around and ask about discounts

As with any major purchase, comparison shopping for homeowners insurance is a good idea. Multiple home insurance quotes will help you secure the right policy at the right price. Many insurance agents work with several insurance carriers and can provide more than one estimate for your insurance needs. If you’re going it alone, talk with multiple carriers and compare quotes for several home insurers. Check out our simple explanation for the difference between insurance agents and carriers and get a better understanding of how the industry operates.

Insurance providers typically provide discount options if you ask. Your home might qualify for discount options for new renovations, safety and security features, an updated roof, proximity to a fire hydrant and loss mitigation features on your home, like storm shutters. You might qualify for professional discounts if you’re a teacher, member of the military or senior. Depending on your other insurance needs, you may receive a discount for bundling your policies, going paperless or paying your premium a year at a time. If you don’t qualify for any discounts, check out our tips for lowering your insurance premium the smart way.

Remember, it’s not always about the best price. You need the right coverage for the right price. Not paying a lot for insurance might feel like a win each month when you pay your premium, but when one of life’s worst moments happens, you want to be sure your claim is covered, and your home and life are returned to normal. You need to secure the best homeowners insurance for your individual needs.

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Budget for home maintenance

Make home maintenance a priority when you’re finally in your new home. Part of your agreement with your insurance provider is maintaining and upkeeping your property. Neglect is not a covered loss. It’s expected that you do things like properly maintain any handrails or stairs, prune bushes and trees away from your home, and prevent insects or rodents from making their way into your home.

You can take care of many of the maintenance items weekend-warrior style with some simple DIY work. But other, more extensive, or costly projects will need to be taken care of as you live in the house. Creating a budget for repairs is the first step to staying ahead of maintenance. Refreshing exterior paint, replacing or repairing worn gutters and updating the roof are part of homeownership. Repairs can be costly and putting them off (deferred maintenance) has a higher future cost. Don’t get caught off guard without a budget.

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Create a home inventory

Insurance not only covers damage to the home structure but also the contents inside. Your personal belongings are what make a house a home. If you need to file a claim, your insurance company will ask about the items you’ve lost. Even when you’re not dealing with a crisis that could result in a claim, it would be a brain exercise to recount the items in your home from memory. A home inventory documents your belongings and their financial value and can be used at the time of a claim. You can do this yourself in a spreadsheet, or use a free home inventory app to help you.

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File claims with discernment

You purchase insurance hoping you never need it trusting it will be there if one of life’s worst moments happens. But always practice good judgment before filing a claim. You’ll have to pay your deductible before insurance covers the cost of repair or replacement. If the cost of the work you need completed is close to the cost of the deductible, it might make sense to cover the repair costs yourself. Each claim filed is recorded. Insurance companies track this information and use it to determine premium costs and whether to renew a policy, which can affect your future insurance coverage. If you decide to move forward, here’s everything you need to know about filing a claim.

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Revisit your policy annually

Too often, homeowners purchase insurance and then forget about it, assuming that once it’s in place, there’s nothing left to do. Homeowners insurance policies renew annually, but a lot happens in a year. Around the renewal time for your policy, it’s a good idea to review your coverages, check in-home maintenance needs and update your inventory. Whether you do it when your policy renews or anytime throughout the year, complete an annual property insurance checkup.

Doing new things for the first time feels daunting, including purchasing homeowners insurance. Break it down and take each step of the process one by one. Work with a professional, ask lots of questions and most importantly, enjoy this new chapter of becoming a homeowner. Good luck on your journey to finding and insuring the perfect first home for you and your family.