Buying Home Insurance For The First Time - 7 Steps

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Buying Home Insurance For The First Time

Home insurance is an essential part of any new home purchase. Your lender will probably ask you to secure home insurance in the final steps of the home closing process. It's important that you get the right amount of coverage at an affordable rate. I've made a simple 7 step guide that you can follow when buying home insurance for the very first time.

Step 1: Review Exposure/Risks At Your House

The most common home insurance claims are wind, hail, water, and freezing damage. However, if you live in certain states, you probably care a lot more about wind coverage, and less about freezing. A Florida homeowner should be more focused on high wind/hurricane deductibles vs. someone in Illinois. If you live in IL, you probably care more about water damage converge, especially if you have an older home. Each home's risk exposure is different, but you can get a little smarter by getting a free home risk report for your neighborhood. 

Step 2: Learn Home Insurance Coverage Basics

The basic home insurance coverages are:

Coverage A Dwelling Your home + anything structurally attached
Coverage B Other Structures Structures not attached to your home
Coverage C Personal Property All your belongings
Coverage D Loss of Use Your home is unlivable, hotel party
Coverage E Personal Liability You get sued, happened on your property
Coverage F Medical Liability Guest medical injury on your property

These are the 6 core coverages in most home insurance policies. Always get replacement cost for Coverage A. Replacement cost is the cost to rebuild your home from the ground up and is not the same as market value of the home. Replacement cost factors in other costs like building permits, labor, and construction materials.

Step 3: Evaluate Optional Coverages/Exclusions

Know where the FINE PRINT is going to catch you down the road. Home Insurance has hundreds of tiny carve outs and exclusions across the 50+ page document. Some of them you can pay a little more to buy back coverage, and some you just can't be covered for no matter what (like wear and tear). Let's focus on the former, what you can control:

  1. Special Deductibles
  2. Water Damage (many types)
  3. Water Backup
  4. Mold Damage
  5. Flood
  6. Earthquake
  7. Sinkhole Coverage
  8. Mine Subsidence
  9. Screened Enclosures/Carports (coastal states)
  10. Service Line Coverage

Many of these vary by state. You can bet where something is higher risk, it is more likely to be excluded or limited by your policy. Carriers carve up policies to make the price more affordable. It is also important to note there are special sublimits on certain categories of personal belongings. (that fancy engagement ring probably isn't covered). Below are the standard sub-limits in a home insurance policy:

home insurance policy special sublimits

Step 4: Shopping For Home Insurance

Home insurance shopping is a huge pain most places online. There are a lot of lengthy forms and lead generation companies that sell your information. It's best to work directly with an agent as they will know what is available in your area and have the licensed expertise to make solid recommendations. There are two types of agents:

  • Independent Insurance Agent - These insurance agents work with many different insurance carriers and can provide multiple options (usually 5-25) for customers looking for a quote. Note: Young Alfred is an independent insurance agent
  • Captive Insurance Agent - Captive means they work for a single company. They can only offer you one option for coverage. 

Step 5: Check For Discounts

There are many discounts available in home insurance. Discounts are usually found when the home has favorable features, you have a strong credit/claims history, or when you bundle your home insurance with other products. Young Alfred finds the discounts for you, for free.

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Step 6: Review Coverage With Your Lender

Your lender will want to be sure the coverage satisfies the loan requirements. They want to check the insurance agent did their work in correctly estimating the replacement cost of your house. Sometimes the insurance agent does their job correctly and there is still a disagreement. This can become an issue when the market value of your home (what the lender wants) is different than the replacement cost of your home (what the insurance company wants).

Step 7: Purchase by Entering Escrow Information

When you are ready to checkout, you don't even need a credit card. With home insurance you can bill directly to your escrow account and it gets wrapped into your mortgage. This makes it super easy to pay the bill each month. Make sure you provide your lenders full mortgagee clause at checkout. It should include:

- Your Mortgage Loan #
- FULL LEGAL NAME of your Lender
- Lender Address


My Mortgage, Inc. ISAOA/ATIMA
550 Mortgage Lane
City, ST 00000

You're all set. Congrats on the new home and awesome job for studying up on your home insurance coverage! Still shopping for home insurance? We got you:

Buy Home Insurance

At your service,
Young Alfred