Home Insurance Tips for First-Time Buyers

July 31, 2023

First-time homebuyers have many decisions, including which home insurance to purchase. If you didn’t know, you need home insurance to protect your finances should you lose your home to a disaster. Your mortgage company will require it.

Home insurance can also help with the cost of sudden repairs due to a natural disaster, theft, vandalism, or liability from someone getting hurt on your property. It’s a catch-all policy that you don’t want to ignore.

But how do you find the best policy? Here are the best home insurance tips for first-time buyers to help you get the best coverage.


What is Home Insurance?

Home insurance covers your home should you have damage from covered perils or events beyond your control, such as a fire, hail, or theft. Think of it like a contract between you and the insurance company.

When you buy an insurance policy, you agree to pay the premiums annually, monthly, or at another agreed-upon frequency. In exchange for the premiums, the insurance company provides financial protection if you suffer a loss that falls under the protection provided in the insurance policy. 


What Does it Cover?

Every home insurance policy differs by company, but on average, here’s the protection you may get:


  • Dwelling – Coverage for your home’s structure is the most important. It covers the cost to repair or rebuild your home in case of damage from a fire or a storm, as a couple of examples. 
  • Other coverage – If your home has other structures, such as a shed, fence, or farmhouse, it will fall under ‘other coverage’ since it’s a part of your home but not the original structure.
  • Personal property – Coverage for personal belongings, such as furniture, clothing, electronics, and jewelry, falls under personal property. If you suffer a loss of your items from any covered peril (including theft away from home), you may file a claim.
  • Liability – If you’re considered at fault for someone’s injury that occurs on your property, or you cause damage to someone’s property, liability insurance can help cover the legal fees and medical costs.
  • Medical payments – If a visitor (not anyone who lives in the home) is injured on your property, this coverage will handle their medical bills.
  • Additional living expenses – If you must be rehomed due to damage to your home, the additional living expenses coverage can help with hotel, food, clothing, and anything else necessary to live outside your home.


What Doesn’t Home Insurance Cover?

One of the best home insurance tips you can take away from this is understanding what home insurance DOESN’T cover. What it does cover seems broad and helpful, but there are many things it doesn’t cover that you should understand.


  • Floods – Any damage due to flooding from most sources, including rain, sewer, and sump pump, isn’t covered. Water damage from a natural source falls under this heading and would require a separate flood insurance policy. If you live in a designated flood zone, your mortgage lender will likely require you to carry flood insurance. However, many insurance policies cover sudden and accidental water damage, such as burst pipes.
  • Earthquakes – If you live in an area subject to earthquakes, know that home insurance doesn’t cover damage from earthquakes, tremors, mudslides, or sinkholes. However, it may cover theft AFTER an earthquake or an explosion from a fire or explosion due to earth movement.
  • Damage during construction – If you remodel your home and damage occurs, your home insurance probably won’t cover it. Ensure any contractors you use are licensed, bonded, and insured.
  • Home businesses – If you run a business from home and someone is injured, home insurance won’t cover it. Many standard policies include up to $2,500 in damages for business equipment. Beyond that, you may need additional endorsements or a business owner’s policy. 
  • Mold – Most home insurance companies don’t cover mold because it’s difficult to determine if it occurred from a leak, natural water damage, or negligence.
  • Neglect – If you neglect your home’s required maintenance and suffer a loss, the insurance company could deny the claim if they determine you didn’t properly maintain the home.
  • Some dog breeds – If you have a dog, check with your insurance company if they include your dog’s breed in the coverage. If your dog causes injuries or damage and it isn’t an excluded breed, they may cover the costs. However, many insurance companies exclude specific breeds


How Much Does Home Insurance Cost?

The average home insurance premium nationwide is $159 monthly based on $200,000 in dwelling coverage. However, premiums vary widely based on many factors, including coverage amount and location.

For example, the average home insurance premium in Nebraska is $344, and in Hawaii, it’s only $38 based on $200,000 dwelling coverage. To increase dwelling coverage, the average premium increases. So, if you need $500,000 in dwelling coverage, you’d pay an average of $320 per month.


Factors Affecting the Cost of Home Insurance

Besides location and dwelling coverage, here are the top factors affecting home insurance costs:


  • Deductible – The amount you promise to pay should you have a covered event determines your premiums. The higher your deductible is, the less risk insurance companies take, providing you with lower premiums.
  • Coverage type – If you need more than a standard insurance policy, your premiums will increase. For example, if you have valuable personal belongings exceeding the policy’s limits or you need a home business endorsement, it will increase your cost.
  • Home’s age and condition – Older homes may have more problems or be more expensive to repair if they have antiquated systems, increasing your insurance premiums.
  • Your personal history – Insurance companies look at your insurance claim history, credit score, and sometimes even your age and marital status to determine your premiums.


How Much Home Insurance Do You Need?

One of the most challenging parts of shopping for home insurance is figuring out how much coverage you need. You don’t want to overpay for coverage that you don’t need, but you also don’t want to underpay for coverage that you do need. To avoid both scenarios, you need to evaluate the value of your home and your possessions, identify the potential risks and hazards that you face, and determine the necessary coverage limits that will protect you from financial losses.

Most home insurance companies have tools to determine your home’s replacement cost so you know how much you need for dwelling coverage, but you should consider other factors, including the following:


  • Dwelling – Be sure your dwelling coverage is enough to replace your home. This may not be your home’s worth or selling price, but the amount it would cost to replace the house, including any upgrades.
  • Choose replacement or actual cost value – Replacement cost value coverage accounts for inflation and ensures you have enough coverage to rebuild the home even years from now. Actual cost coverage covers the actual cost to replace the home today and accounts for depreciation through the years. 
  • Consider other structures – If you have structures outside the main house, ensure you have enough coverage for them in the case of a total loss, such as a shed or detached garage.
  • Take inventory of your personal belongings – Be sure you have enough personal property coverage to cover your belongings. Each insurance policy has a limit for personal belongings, but you can purchase endorsements if you need more coverage for higher-value items.


What is a rule of thumb for Home Insurance?

To have full coverage, insurance companies require that you carry at least 80% coverage of the full cost to replace your home. For example, if you paid $350,000 for your home, you must at least have $280,000 in dwelling coverage. 

However, through the years, it’s important to adjust your home insurance so you have 80% coverage of the improved value, especially if you make improvements or it appreciates. 


What Types of Insurance Should be Purchased When Buying a House?

When you buy a house, there are many insurance policies you should consider. The most obvious is home insurance. This covers any cost to replace or repair your home from a covered disaster.

You may also consider flood insurance if your home is in a flood zone. Your mortgage company will require it if you are in high-risk flood zones, but you always have the option to purchase flood insurance even if your mortgage lender doesn’t require it.

Your lender will also require a lender’s title insurance when you buy a home. You pay the premium, but the insurance covers the lender for legal fees if there are any issues with the home’s ownership or past liens. You also have the option to purchase owner’s title insurance to provide yourself with the same coverage.

The final insurance is Private Mortgage Insurance and is only required if you borrow more than 80% of the home’s value, aka put down less than 20% on the home. Conventional, FHA, and USDA loans require mortgage insurance. This coverage protects the lender if you stop making your payments and the loan goes into foreclosure. 


4 Home Insurance Tips to Get the Best Rates

So you know you need home insurance. How do you get the best rates? Here are four home insurance tips for first-time buyers.


1. Get multiple quotes

Each insurance company can handle different situations and will charge accordingly. Some insurance companies have a higher risk tolerance than others or specialize in home insurance and can offer lower rates. Get quotes from at least three agencies, comparing the same type of coverage, including deductibles, to compare apples-to-apples.


2. Bundle your insurance

Many insurance companies offer bundled discounts if you purchase multiple policies from them. The most common bundling discount is from purchasing home and auto insurance. Carrying multiple policies with one company gives them more business with less work, so they can offer discounts. Bundling home and auto insurance may save you as much as 15%.


3. Improve your credit

Before buying a house, you need good credit to get financing, but that good credit score can also help you get lower home insurance rates. Many insurance companies pull your credit to ensure you’re a good risk, as some companies believe if you have bad credit, you are more likely to have claims, which causes insurance companies to charge higher premiums.


4. Take a higher deductible

Home insurance deductibles start at $500 and increase in $500 increments. The higher the deductible you take, the lower the premiums insurance companies offer. Only take a deductible you know you can afford, though. For example, it’s not a wise choice if you take a $2,500 deductible to get the lower premium but can’t actually afford $2,500 in damages.


Safeguarding Your Home to Lower Premiums

One of the best ways to save money on your home insurance is to safeguard your home from potential risks and hazards that could lead to a loss or a claim. By implementing some simple home security and safety measures, you can reduce the chances of experiencing a loss or a claim, and therefore lower your premiums. Here are some tips to help you safeguard your home:


Implement home security measures: You can deter burglars and intruders by installing locks, alarms, cameras, motion sensors, or security signs on your doors, windows, and gates. You can also join a neighborhood watch program or use a smart home system that allows you to monitor and control your home remotely.


Upgrade your home’s safety features: You can prevent fires and water damage by installing smoke detectors, fire extinguishers, sprinklers, carbon monoxide detectors, sump pumps, or water leak sensors in your home. You can also replace old or faulty wiring, plumbing, heating, or cooling systems with newer and more efficient ones.


By following these tips, you can safeguard your home from potential risks and hazards that could lead to a loss or a claim, and therefore lower your premiums. You can also qualify for discounts or lower your deductibles by demonstrating that you have taken steps to protect your home. You should always check with your insurer to see what discounts or incentives they offer and how you can apply for them.

Is Home Insurance Required?

No law requires home insurance; however, if you use mortgage financing to buy your home, your mortgage lender will require it. You must name your mortgage lender as a lienholder on the insurance. Then, if you file a claim, the insurance company will write the check to you and the mortgage company to cover all bases.



Is home insurance paid through your mortgage?

If your mortgage lender has an escrow account, then they use the money paid to your escrow to cover your home insurance. They’ll add 1/12th of your home insurance premium to your mortgage payment monthly and keep the funds in a separate account until your policy renews. They pay the premium, renew your policy, and adjust your mortgage payments as needed if your premiums increase.


What is the most important thing for home insurance?

The most important factor to consider with home insurance is the coverage amount. Understand whether you have replacement cost coverage (the better option) or actual replacement cost value. Always ensure you have at least 80% coverage of the full cost to replace your home and adjust your coverage as needed if the replacement cost increases.


How many quotes should I get for home insurance?

It’s best to get three or more quotes when shopping for home insurance. The key is to ensure you compare the same types of policies, including policies with the same dwelling coverage, as well as any other endorsements you want on the policy.


Making Informed Decisions

The last and most important step of shopping for home insurance is making informed decisions. It basically involves avoiding common mistakes or pitfalls that could cost you money or coverage. Here are some tips to help you make informed decisions when buying home insurance:

Take your time to review and compare options: You should not rush into buying home insurance without doing proper research and comparison. You should take your time to review and compare different insurers, coverages, and quotes to find the best value for your money. 

Ensure coverage aligns with your specific needs and budget: You should not buy more or less coverage than you need or can afford. You should buy enough coverage to protect your home and personal property from potential risks and hazards that you face. 


Final Thoughts

Finding the best home insurance is just as important as finding the right mortgage. Your home insurance is financial protection to help you keep up with your mortgage if you lost your home to a natural disaster or your home needs major and expensive repairs.

You can buy home insurance now and change companies in the future. Your policy will renew annually, so it’s always a good idea to shop around and make sure you’re still getting the best deal.