First Time Home Buyer? Here’s What You Need to Know

Updated February 20, 2024
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When you’re a first-time homebuyer, understanding homeowners insurance is crucial. Whether a new homeowner or not, in today’s hard market, the aim of a homeowner needs to be to become the ideal type of customer to the insurance companies. Demonstrate pride in ownership and mitigate the potential for damage from the highest risk factors in your area. Here are the most important things to know:

  1. Coverage Types: Homeowners insurance typically includes coverage for the structure of your home, personal property, liability protection, and additional living expenses if your home is uninhabitable due to a covered loss. If you are buying an older home, see how this could limit your home insurance options.
  2. Dwelling Coverage: This part of your policy pays to repair or rebuild your home if it’s damaged by a covered peril, like fire or storm. Ensure the coverage amount is enough to rebuild your home at current market rates. Ask for a reconstruction cost estimator from your agent.
  3. Personal Property Coverage: This covers the contents of your home, like furniture and electronics. Replacement cost (pays to replace items at current market rates) is far better than actual cash value coverage (pays the depreciated value of the items).
  4. Liability Protection: This protects you if someone is injured on your property or you damage someone else’s property. It can cover legal fees and damages. Consider if the standard amount is sufficient based on your assets.
  5. Additional Living Expenses (ALE): If a covered disaster makes your home uninhabitable, ALE pays for temporary housing and living expenses.
  6. Flood and Earthquake Insurance: Standard policies usually don’t cover flood and earthquake damage. If you live in an area prone to these disasters, consider purchasing additional coverage.
  7. Deductibles: A deductible is the amount you pay out of pocket before insurance kicks in. Higher deductibles can lower your premium, but make sure it’s an amount you can afford if you need to file a claim.
  8. Premium Factors: Factors like your home’s location, size, age, and safety features can affect your premium. Improving home security or updating electrical systems may lower your premium.
  9. Discounts: Ask about discounts for bundling policies, installing security systems, being claim-free, or other factors.
  10. Policy Review and Updates: Review your policy annually and update it to reflect major changes, like renovations or purchasing expensive items.
  11. Understand Exclusions: Know what’s not covered. Common exclusions include wear and tear, intentional damage, and certain natural disasters. Homeowners insurance is not a home maintenance policy and filing maintenance related claims will cause you to be viewed as at a high risk for claims.
  12. Shop Around: Compare quotes and coverage options from multiple insurers to find the best deal for your needs. It’s not all about price. That extra couple hundred dollars a year for an endorsement can make all the difference with a catastrophic claim.
  13. Claims Process: Understand how to file a claim and what the process entails. Keep an inventory of your home’s contents, as this can be invaluable in the event of a claim.
  14. Special Considerations for Condos and Townhouses: If you’re buying a condo or townhouse, you might need a different type of insurance policy. Check with your homeowners’ association for any coverage they provide and what you need to cover personally.
  15. Risk Assessment: Insurers often assess the risk of insuring your home based on factors like location and construction materials. Understanding these factors can help you mitigate risks and potentially lower your premiums. Confirm whether or not the prior owners had filed insurance claims and ask your inspector to confirm that all repairs have been made properly.

Remember, homeowners insurance is not a one-size-fits-all product. Your needs may vary based on your home’s specifics and your personal circumstances. It’s always a good idea to discuss your situation with an insurance professional to get tailored advice.