Buying your first home is a major milestone – and protecting that investment is just as important as finding the right property. One key step in the homebuying process is understanding how home insurance works.
From what it covers to how much it costs, knowing the basics can help you make informed choices and avoid common pitfalls.
What is homeowners’ insurance?
Homeowners’ insurance is a safety net that cushions you against financial losses from unexpected events like fire, theft or vandalism. For first-time homeowners, it’s a vital way to protect your investment.
What does home insurance cover?
Home insurance can help protect your home and personal belongings against various risks, including property damage, loss of personal belongings and liability claims. Policies typically include:
- Dwelling coverage, which helps protect the main structure of your home from risks like fire, vandalism and severe weather.
- Personal property coverage, which covers belongings, such as furniture and electronics, although high-value items may have coverage limits and require an inland marine floater.
- Additional living expenses coverage, which helps to cover temporary housing costs if your home becomes uninhabitable due to a covered event. This can help to ensure you have a place to stay during repairs.
Is homeowners’ insurance required?
While home insurance is not legally mandated, most mortgage lenders require it as a condition for loan approval. They typically expect coverage that matches the rebuilding cost of your home to protect their investment. Additionally, if you are part of a homeowners association, they may require you to carry insurance, regardless of your mortgage status.
Key Terms First-Time Homebuyers Should Know
Understanding the terms used in your homeowners’ policy is crucial for making informed decisions while navigating your options and understanding your rights and responsibilities as a homeowner.
- Premium: The amount you pay – whether monthly, quarterly or annually – for your insurance policy. Factors that influence premiums include your home’s location, age, construction materials, security features and claims history.
- Perils: Events or risks that can cause damage and may be covered by your policy. Not all perils are covered – for example, flood damage is typically excluded and requires a separate flood insurance.
- Coverage Amount: The maximum amount your insurance company will pay for damages and losses. Typically, this amount should reflect your home’s rebuild cost – which may not be its market value. This figure is crucial because it determines whether you’ll be able to fully recover the value of your losses after a covered claim.
- Deductible: The amount you’ll need to pay out of pocket before your insurance coverage kicks in. Choosing a higher deductible generally leads to lower monthly premiums, but it also means you’ll pay more out of pocket if you file a claim.
- Liability Coverage: An essential part of home insurance that can provide a financial safety net in case of accidents. It helps cover legal and medical expenses if someone is injured on your property.
Common Misconceptions About Home Insurance
Some homeowners may believe that their standard policy covers all potential risks, but specific incidents and items are commonly excluded. For example, natural disasters like floods and earthquakes often require separate policies.
Homeowners are responsible for routine maintenance and standard wear-and-tear, both of which are not covered by insurance. Additionally, sewer backup coverage is typically not included in a standard policy, but may be available as an add-on.
Understanding exclusions like these can help avoid surprises when filing a claim. Learn more about the most common exclusions in homeowners’ insurance policies.
How to Save Money on Homeowners’ Insurance
A few strategic steps could help you save money on home insurance:
- Bundle homeowners’ insurance with other policies, such as auto insurance, to access potential savings.
- Installing safety features like leak detection systems, smoke detectors and security systems could allow you to earn premium discounts.
- Increasing your deductible generally results in lower monthly premiums, though it means higher out-of-pocket costs during claims. Make sure to consult your insurance advisor before making changes to your deductible amount.
How Higginbotham Can Help
Navigating homeowners’ insurance as a first-time homebuyer can be daunting, but Higginbotham is here to help. Our personal insurance specialists have experience finding insurance solutions for new homeowners and can help find a policy that suits your specific needs.
Talk to one of our homeowners’ insurance specialists to learn more.
