How to Buy Homeowners Insurance

Buying your first home is an exciting time. But it can also be complicated, requiring everything from getting pre-approved for a mortgage to scheduling tours to booking inspections, closing, and more. With so many moving parts, it can be easy to overlook something — like buying homeowners insurance.

Unfortunately, homeowners insurance isn’t something you can overlook, for a number of reasons. For starters, most mortgage lenders will require you to carry a certain amount of coverage in order to be approved for the loan. Beyond this, it’s just typically not a good idea to forgo insurance.

If you’ve never purchased homeowners insurance, you might feel overwhelmed about buying your first policy. To help make the process more manageable, below we offer a step-by-step guide for buying homeowners insurance and answer other common questions for first-time homebuyers.

When Do You Need to Purchase Coverage?

Usually, the loan specialist handling your mortgage application and approval will notify you about key deadlines, including when you are required to have homeowners coverage.

As a rule of thumb, however, you will need to have purchased coverage by the date of your home’s closing. This usually takes place about a month after you sign the contract to buy your new home. Many mortgage lenders also require evidence that you have paid the first year’s premiums in full.

With this in mind, it’s typically a good idea to start shopping around for coverage as soon as possible. This can include comparing insurance carriers well before you sign a contract on your home to understand the pros and cons of each. Once you know your new home’s address, you can begin the process of requesting quotes.

1. Determine How Much Coverage You Need.

The first step in buying homeowners insurance is to decide how much coverage you actually need. While this will depend on a number of factors, including your budget and your personal tolerance for risk, there are some rules to keep in mind:

First, it’s usually recommended that your dwelling or structural coverage limits are calculated to at least match your home’s replacement cost. This is the cost to rebuild your home if it is completely destroyed. (Importantly, it’s not always the same as your home’s market value.) Many mortgage lenders require this.

To get additional protection, you can often purchase extended replacement cost coverage. This optional coverage offers more funding on top of your home’s replacement cost, which can help you pay for a rebuild even if building costs rise and exceed your replacement cost.

You should also consider your other coverage limits, including personal property coverage. In many cases, it’s possible to purchase more coverage on top of your base policy, which you may want to do if you have a lot of valuables in your home. A licensed insurance agent can be a helpful resource as you weigh your coverage options.

This is also a good time to consider what coverage might cost and how it will fit into your budget. Use our handy homeowners insurance calculator for an estimate on what your premium payments might look like.

2. Determine the Size of Your Deductible. 

Your homeowners insurance policy will specify a deductible, just like you might find in your car insurance or health insurance policy. Simply, this is the amount of money you will have to pay out-of-pocket toward a covered event before your homeowners policy will kick in to cover the rest.

Importantly, your policy will likely specify different deductibles for different types of coverage. For example, you will have to meet one deductible for your dwelling coverage, and a different deductible for personal property coverage. These amounts usually reset per covered event — not annually, like health insurance.

Most insurers will allow you to adjust your deductible to your needs. The larger your deductible is, the more you’ll have to pay out of pocket before your insurance activates — but the lower your premiums will usually be. On the other hand, a lower deductible means a lower threshold to cover before your insurance starts paying the cost of a repair, but at the cost of higher premiums. Only you can decide which is the right option for your needs.

Learn more about how homeowners insurance deductibles work.

3. Consider Riders or Additional Insurance.

Remember those exclusions we mentioned earlier? In many cases, it’s possible to purchase additional coverage explicitly for those excluded events. This is done by purchasing a rider (or endorsement) on top of your base policy.

Your risk tolerance, where you live, the size and condition of your home, and a variety of other factors will influence whether you purchase an endorsement for your policy. Some common riders you may want to consider include:

• Flood insurance
• Earthquake insurance
• Water backup coverage
• Building code coverage
• Scheduled personal property
• Business property coverage
• Identity theft coverage
• and more

Learn more about how riders work and why you should consider them.

4. Shop Around for Coverage.

Once you understand your coverage needs, you should begin shopping around to find an insurance company. It’s a good idea to get quotes from between three and five different carriers to find the right coverage and rates.

In addition to cost, you should also consider the insurance company itself before you make a decision. Some factors that might weigh on which carrier you choose include:

• Reviews: Does the carrier have a lot of positive or negative reviews?
• Customer support: Are you happy with the level of customer service you receive when you initially reach out? What communication options (email, phone, text, etc.) do they offer, and do those meet your preferences?
• Financial strength: If a carrier is not financially stable, they may not be able to honor your policy if you experience a covered event. Whenever possible, look for an A-rated carrier to be sure your home is truly protected.

While you can compare carriers manually, you might have an easier time leveraging a platform that can handle the shopping for you — like Matic. By answering just a few simple questions, we’ll provide you with personalized quotes from our network of carriers.

5. Make a Decision and Purchase Your Policy.

After you find a carrier that meets both your budget and coverage needs, you should officially purchase your policy.

Many carriers will perform a home inspection within a few weeks or a few months after coverage has started to ensure that your home does not have any hazards or risks that need to be addressed. This inspection can be as simple as a simple walk around the exterior of your home, or it may include a more thorough inspection of the interior as well. It’s important to note that most carriers have a 60-day window in which they can cancel your coverage in the event your home fails their inspection, though timing and specifics can vary significantly from carrier to carrier.

This is also a good time to inquire about any homeowners insurance discounts you may be eligible for. Paperless, paid-in-full, and home-and-auto bundles are very common and can add up to significant savings.

6. Notify Your Lender.

If you are using a mortgage to purchase your home, the lender will need to be notified once you have purchased insurance coverage.

Typically, this notification will come from your carrier or insurance agent, who will also provide your lender with the specifics of your policy. Sometimes, your realtor may handle notification. In some cases, you may be required to provide your mortgage lender with a certificate of insurance (COI) proving coverage.

Today, mortgage lenders often require that payments be handled via an escrow account. These accounts are used to make not just your mortgage payment, but also your homeowners insurance premiums and property tax payments. Once you have purchased coverage and notified your lender, it’s a good idea to inquire about your escrow payments — both schedule and amounts — so that you can prepare.

Learn more about how escrow accounts work for homeowners insurance.

7. Periodically Revisit Your Coverage.

Congratulations, you’ve purchased your first homeowners insurance policy! But that doesn’t mean you should stop thinking about your coverage. As your needs evolve and carriers adjust premiums from year to year, it’s a good idea to periodically revisit your policy to make sure that you’re appropriately covered — and that you’re getting a good deal.

While there’s no rule here, consider taking a look at your policy every one to three years. It never hurts to shop around and see if you might qualify for lower rates with a different carrier.

Learn more about the benefits of reshopping your homeowners insurance policy.

Don’t Overlook the Importance of Homeowners Insurance

Homeowners insurance is an integral part of buying your first home — and it’s not something you can overlook. The good news? Buying coverage doesn’t need to be difficult. With Matic, you can shop for the coverage you need at competitive rates.