How to Buy Homeowners Insurance: From an Industry Expert - YA

Buying Homeowners Insurance - The Expert's Guide 

Young Alfred here, your resident expert on home insurance. Follow my step by step guide to get the right protection on your most valuable asset: your house!

Step 1: What Type of Policy Do You Need?

First, make sure you get the right type of coverage:

Home Type ISO Policy Type
Single Family Home HO3, HO5
Townhome HO3, HO6(rare)
Rental Home DP3, DP1
Secondary Home HO3, DP3
Vintage Home HO8
Vacant Home DP1
Condo HO6
Apartment HO4
Mobile Home MHO3, MDP1
Manufactured Home MHO3, MDP1

Step 2: What Does Home Insurance Cover?

If you have a mortgage, your lender will require you to have homeowners insurance. But what does the home policy actually cover? The big three are: your home, your belongings, and your liability.  

  1. Your Home: Get Replacement Cost

    The first line item on your home insurance policy is usually called Coverage A: Building/Dwelling Coverage. This is the value to rebuild your home from the ground up. This is not the same as the market price you paid to buy your home. Imagine your home is completely burned to the ground. The insurance company will rarely write you a check to purchase a similar home elsewhere, instead they will require you to rebuild a similar home. Replacement cost is the estimated cost to rebuild your home, including labor, materials, construction permits, etc. 

         "But, I just want a check" 

    If you just want a check, you can ask for an actual cash value policy (DP1) for a specific amount of coverage. I DO NOT RECOMMEND THIS. These policies will cover an agreed upon amount for a bare bones list of perils (again, not recommended)

    -  Fire, Smoke
    -  Wind, Hail
    -  Lightning
    -  Explosion
    -  Aircraft, Vehicles (hitting the house)
    -  Volcanoes
    -  Vandalism, Riot

  2. Your Personal Property: Included, but check special sub-limits 

    In your home insurance policy, you will likely see a line called - Coverage C: Personal Property. What is this? Think of picking up your home, turning it upside down, and shaking it. Everything that falls out is personal property. What they don't tell you is that most standard homeowners policies have special sublimits for about 13-15 categories of your property:

    This means you are only covered up to $1,500 for jewelry theft or up to $1,500 for damaged computer equipment. You can add on more coverage in any of these categories, for a price. For jewelry, if you have high value items, like an engagement ring, you need to schedule the item separately. 
  3. Your Liability: Lawsuits

    In America, we take pride in the right to sue anyone for anything. Josh may be your best friend today, but see what happens when he slips on the ice in your driveway and can't walk for 3 months. Hopefully you are never on the receiving end of a lawsuit, but just in case, make sure you have liability coverage to protect your entire net worth. If you have more than $500,000 in net worth, look into buying an umbrella policy - super cheap for the extra protection it provides. Think of "net worth" as everything you own, not counting your primary home and retirement accounts.
  4. Perils: What's Covered, and what's NOT Covered

    Homeowners insurance covers a lot, but not everything. Here are the most common claims that are covered:

    Believe it or not, your homeowners does not cover everything. Some items not covered by default can be added for extra premium:

    and some perils can never be covered

  5. Your Roof: How is it Covered?

    Your Roof is the MOST IMPORTANT part of your home, especially when it comes to homeowners insurance. A normal roof should be replaced about one time every 20 years. If you have an older roof, your home insurance coverage may only cover the roof at Actual Cash Value (ACV). This means in a roof claim, you aren't getting a full reimbursement to put on a new roof. Say your roof is 19 years old and you have a hail storm that damages the roof to the point that it needs a full repair. The insurance company is not going to cut you a check for a brand new roof if it is covered at ACV, because you were going to have to replace the roof in the next 5 years anyway. They will give you a check that represents the remaining useful life of your roof. If the roof is 19 years old, has a 25 year useful life, costs $15,000 to replace, and you have a $1,000 deductible, you are only going to get a check for (25-19)/25*15,000 - $1,000 = $2,600. If your roof is covered at Replacement Cost, you are getting a check for $15,000 - $1,000 = $14,000. In this very common example, the Replacement Cost Coverage on your roof was worth an extra $11,400. Check how your roof is covered when getting quotes. 

Step 3: Where to Buy Home Insurance?

Now that you're an expert on home insurance coverage, it's time to go shopping! Shopping for home insurance can be confusing. There are lots of ways you can find quotes, but no matter what path you take, you will eventually end up at a home insurance agent (like me). No one can sell you a policy if they are not licensed. There are many "lead generation" sites out there that advertise the ability to "compare quotes" or "save $615 on your home insurance", but in reality, they cannot sell you insurance. All they do is sell your information to licensed insurance agents or insurance carriers. If you like shopping online (we do!), always check that website you are using is a licensed insurance agency or carrier before submitting your personal information, unless you are ok with your information being sold to the highest bidder. 

While 90% of homeowners start their insurance shopping online, the majority end up finalizing the purchase offline. Here are the 3 ways you can actually finalize or buy your homeowners insurance

  Pros Cons Where
Online  Fast, Efficient, Chat, Competitive Price No Face-to-Face Young Alfred, Hippo, Swyfft
Over the Phone Easily Ask Questions, Competitive Price Slow, Requires Phone Call GEICO, USAA, Liberty, Farmers
In Person Face to Face, Relationship Slow, Schedule Interview, One Price State Farm, Allstate

You also can choose which type of insurance agent you would like to work with:

  • 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. Independent insurance agents can shop around and customize your package in more ways because they have more product offerings at their fingertips. They are usually a little more "insurance savvy" than their counterparts below. Their independence can be your greatest asset in finding fair and affordable coverage. Hundreds of insurance companies work with independent agents.
  • Captive Insurance Agent - Captive means they work for a single company. They can only offer you one option for coverage. The price may be competitive, or it may be overpriced, but it is their only option, so they have to sell it! On the plus side, captive insurance agents will be intimately familiar with the product offered by their specific company. The 4 large remaining captive carriers are: State FarmAllstateUSAA, and Farmers.

Step 4: How Much is Homeowners Insurance?

There are many factors that affect the cost of homeowners insurance, but location is probably number one. While the average homeowners premium in the US is $1,173/year,  the average homeowners premium by state can vary dramatically:

  Average Cost
Florida $1,993/year
Texas $1,991
Louisiana $1,945
Oklahoma $1,879
Kansas $1,531
Mississippi $1,508
Rhode Island $1,446
Connecticut $1,411
Colorado $1,383
Massachusetts $1,379
Nebraska $1,360
Alabama $1,358
Minnesota` $1,323
Arkansas $1,312
New York $1,287
South Carolina $1,284
Missouri $1,253
North Dakota $1,200
Georgia $1,152
New Jersey $1,149
Tennessee $1,149
South Dakota $1,096
Wyoming $1,088
Montana $1,081
North Carolina $1,075
Kentucky $1,062
Illinois $1,033
Hawaii $1,014
California $986
Indiana $983
Alaska $982
Maryland $982
New Mexico $982
Virginia $946
New Hampshire $941
Iowa $919
Pennsylvania $913
Michigan $908
West Virginia $907
Vermont $873
Maine $843
Ohio $819
Washington $811
Arizona $810
Delaware $780
Wisconsin $750
Nevada $737
Idaho $692
Utah $673
Oregon $643

Source: Insurance Information Institute

Step 5: What to Look for in Home Insurance?

Customize. A lot of people miss this step, but it is crucial. Once you have a quote that you like, play around with the deductibles and add-ons to customize the coverage and price to your liking. At Young Alfred, our average carrier has 1,474,560 policy combinations you can choose from on your homeowners insurance. While no one has time to review a million options, try at least considering the following 9 big ones before clicking buy:

  1. Deductible (aka AOP Deductible): The deductible you will pay out of pocket before the insurance company pays for damages. Most common are $500, $1,000, and $2,500. This is your deductible for everything on your policy unless there are special deductibles for certain types of loss (see below)
  2. Wind/Hail Deductible: wind and hail claims are the most common homeowners claims, so it is no surprise that carriers will give you a discount by raising this deductible. Just know you are raising the deductible on your most likely loss scenario. The most common deductibles here are 1% and 2%, where the percentage applies to your Coverage A: Dwelling/Building limit. So if you have $300,000 in coverage on your home and a 2% Wind/Hail Deductible, that means if you have a $10,000 wind claim on your roof, you are paying for $6,000 and the insurance company only pays $4,000. 
  3. Hurricane Deductible: this is more relevant for the coastal states - Florida, Texas, Alabama, Georgia, North Carolina, South Carolina, Mississippi, Louisiana, New Jersey, and some areas of Virginia, New York, Maryland, and Connecticut. The most common deductibles here are 1%, 2%, 5%, and 10%. If you can avoid it, please don't buy the 5% and 10% deductibles unless you can brush off a 5 figure hit to your bank account. 
  4. Water Backup Coverage: The most recommended add-on by Young Alfred. This will protect against the backup of water through a drain or faucet in your home. Usually excluded, nice to have.
  5. Additional Jewelry Coverage/Computer Coverage: Certain categories of your personal belongings have special sublimits. You can add-on coverage on a per item basis (schedule an engagement ring - needs appraisal) or on a blanket basis (add $6,000 in coverage for computers - no appraisal unless one item is over $5,000). Here are the special sublimits that are most common in your homeowners policy:

  6. Identity Theft Coverage: With cyber crime on the rise, identity theft can be an affordable add-on to help with the restoration of your credit/identity in a hack scenario. Keep in mind, this will not reimburse monetary loss from the actual help, but cover fees in restoring your identity to a normal manner.
  7. Water Damage Coverage: Most people get this included by default, but areas along the coast, and especially older homes, often only get $10,000 in coverage or none at all. If you are in Texas or Florida, pay close attention to this coverage.
  8. Equipment Breakdown: Helps with HVAC repairs if something breaks down during its useful life. It does not cover normal wear and tear of your HVAC equipment.
  9. Service Line: If a city water line under your front yard breaks, it is technically on you to fix it (as it is your property). This would not be included in your normal homeowners policy unless you add it on with Service Line Coverage. 

Step 6: Ask for Discounts!

Any insurance agent worth their salt will include all discounts available from the beginning. Common discounts are:

  • Smart Home Discount
  • Bundle Discount (if you also purchase an auto policy)
  • Paid-in Full Discount
  • Advanced Shopper Discount
  • Security/Fire Alarm Discount
  • Senior Discount
  • Retired Discount
  • New Home Purchase Discount
  • Roof Update Discount
  • Wind Mitigation Discount
  • New Construction Discount
  • Roof Hail Resistant Materials Discount
  • Storm Shutters Discount

Step 7: Ways to Pay for Home Insurance

You got your policy and are ready to buy! There are three ways to checkout:

  1. Pay with Mortgage/Escrow (most common) - you can buy home insurance with just

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


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

    This is often called the mortgagee clause. You can ask your lender/loan officer for it and buy the policy with only these pieces of information. Make sure to set your start date to line up with the closing of your new home purchase. 
  2. Pay with EFT (Checking Account) - this is a common no hassle/low fee way 
  3. Pay with Credit Card - while you will get those points, you also may get some extra fees. Some carriers do not charge credit card transaction fees, but the majority do, so it's better to choose option 1 or option 2 above. 

The Final Steps

Once you purchase, you aren't done. You still need to sign your application. This is what the insurance company keeps on file to show you have entered into the agreement and have provided accurate information. If you are paying with escrow, it is up to your title agent to make sure the bill is paid, otherwise it is up to you. And of course, read up on how to ace your upcoming home inspection

Congrats on being a homeowner. Hopefully my guide helped you understand how to buy homeowners insurance. If you're looking for top quotes in your area, I'm the home insurance expert. Happy to help!

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At your service,
Young Alfred