In Tips & Advice

Becoming a first-time homebuyer can be both exciting and nerve-racking at the same time. There are a lot of expenses you’ve probably heard about that come with closing on your first home, for instance the down payment, closing costs and agent fees. One expense you may be less familiar with is homeowners’ insurance. Don’t get blindsided by the cost insurance might add to your financial responsibilities – take time to understand your options and get estimates before putting down a large sum on your home.

We’ve assembled a number of most commonly asked questions that first-time homebuyers ask to help give you a better sense of what you need to know when shopping for homeowners’ insurance.

How Much Coverage Do I Need? A Home Inventory Will Tell You.

Start by completing a home inventory (a comprehensive list of everything you own and each item’s value). Make a list or your possessions, describing each item, and noting the make and model and where each item was purchased. Include sales receipts, purchase contracts and appraisals if you have them. Organize your clothing into categories so they are easier to reference.

Here are some handy tips to help you organize your inventory:

  • List big-ticket items such as jewelry, artwork and collectibles
  • Take pictures of important individual items and store with descriptions
  • Describe the contents of each room
  • Save your inventory list on your computer and store it on an external hard drive or disk (you can also send it to a trusted family member for safe-keeping as well)
  • Put all the photos, lists and any other documentation (electronic or paper) in a safe deposit box

What Coverages Are Included?

Standard homeowners’ insurance policies include coverage of:

  • The structure of the home – if your home is damaged or destroyed by a covered peril (fire, windstorms, hail, lightning, theft, vandalism, explosion, water damage and riots)
  • Your home’s contents – if your belongings are damaged or destroyed, it’s typically set between 50 and 70% of your home’s structural coverage; high-value items have a cap on repair/replacement value so you may need a rider policy added
  • Liability – if someone is injured on your property, the liability portion of your insurance policy can help pay for medical, rehab, funeral expenses and legal fees in the event of a lawsuit
  • Other structures – if your detached garage or toolshed is damaged or destroyed by a covered peril (see structure of the home for covered perils), your insurance can help pay to have it repaired or rebuilt
  • Additional living expenses – in the event that you home is destroyed and needs to be rebuilt, this coverage can help pay for living expenses (hotel and food bills) while you’re displaced

Why Won’t Your Insurance Costs Be The Same As The Current Owner’s?

Many first-time homebuyers assume that they will be paying the same for insurance as the previous owner. In fact, many ask the previous homeowners how much they paid for electricity, school and property taxes, along with the insurance cost when deciding on whether or not to buy the home.

What a previous owner paid in insurance is not always a good indicator of what you’ll pay. There are some predictable and consistent factors, such as if the home is in a flood area, or in an area with many windstorms, hail or tornado claims. But, insurance companies like lenders, take into account your personal information to establish the cost; your age, credit rating, profession and other personal choices are used to determine what kind of insurance they choose and how much you’ll pay.

What Factors Can Affect How Much I Pay For Homeowners Insurance?

The following variables can impact the cost of your homeowners’ insurance premium:

  • Home features and characteristics – your home’s age, type of structure, wiring, roof, garage and more can affect your homeowners’ insurance premium. Older homes tend to cost more to insure, and those costs can depend on whether your home is brick, frame, stone or has synthetic siding.
  • Location – where your home is located can impact your premium. Proximity to a police or fire station, exposure to extreme weather (hurricanes, tornadoes, floods) or theft-prone neighborhoods all factor in.
  • Protective devices – burglar alarms, smoke detectors, fire extinguishers, sprinkler systems and deadbolt locks can lower your insurance premium.
  • Personal factors – believe it or not, being a smoker may cause you to pay more for your home insurance than a nonsmoker; in their eyes there’s a greater chance for an accidental fire. A good credit history can also lower your insurance.
  • Claims history – if you have a history of claims, you’ll pay more and if you made a claim under a previous insurance policy, like a renter’s policy, you’re not eligible for a claims-free discount.
  • Previous insurance history – factors like if you’ve never had previous insurance on a residence, have a gap in your insurance history, or if you’ve been previously cancelled by an insurance company for non-payment can impact coverage and cost.

How Can I Save Money On Insurance?

It is possible to cut the costs by making certain adjustments. Some of these are immediate solutions and some require a longer term modification.

  • Discounts – Most insurers offer a laundry list of discounts for policyholders. One of the most common is bundling; by bundling your home and auto insurance with the same provide, you’ll be entitled to a discount. As mentioned earlier, safety/protective devices can also reduce your premiums.
  • Raise Your Deductible – Raising the amount you agree to pay toward a claim before the insurance kicks will lower your premiums. However, setting it too high can come to bite you in the end if disaster strikes.
  • Improve Your Credit Score – Most insurance providers use your credit score as an indicator of how likely you are to file a claim. Studies have shown that those with low credit scores were more prone to filing claims than those who could afford to tackle replacements or repairs on their own.

Does Having Renters Insurance Help Me Lower Costs When I Buy My First Home?

Yes. In addition to the obvious protection from unexpected financial pains in the posterior such as the cat knocking down a candle and starting a fire, or the local thief who decides your TV is his – renters insurance sets you up to save money on your home or condo insurance when you buy your first home. If you show a loss-free claims history, you could be eligible for a discount. Waiting until you buy your first home could cost you up to 25% more for your home insurance as compared to if you had renters insurance for years.

How Do I Pay For My Homeowners’ Insurance?

There are two ways to pay your annual homeowners’ insurance premium. You can pay it once annually, in cash, to your insurer or elect to pay it as part of your mortgage (escrowing), one month-at-a-time. Homeowners choosing to optionally escrow their homeowners’ insurance can typically negotiate lower mortgage rates or loan fees with their lender. A PrimeLending home loan expert can help you evaluate the potential benefits of escrowing your insurance payments.

How Do I Choose A Provider?

The best advice we can give is to shop around for the rates and programs which best meet your needs. Like mortgage rates, homeowners’ insurance vary between carriers. They also vary in terms of coverage. Don’t be shy about asking friends for recommendations either, referrals are great ways to validate the quality of a provider. However you identify potential providers, be sure to get quotes from several companies and compare them.

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