Home insurance for first-time buyers

Key takeaways:

• Most mortgage lenders will set up an escrow account so that your homeowners insurance premiums are paid automatically every month.
• You can help to control what you'll pay for homeowners insurance premium by choosing a deductible that best fits your budget.
• Coverage for floods and earthquakes aren't typically included in a basic homeowners insurance policy and must be purchased separately.

Do I need homeowners insurance?

Homeowners insurance isn't just a small choice - it's often a requirement. If you're financing your home through a mortgage, your lender will likely insist on coverage to safeguard their investment. But even if you're buying your home outright, having homeowners insurance is still a wise move.

The coverage that homeowners insurance provides helps pay for repairs if your home is damaged by fire, storm, theft, or other unexpected events. It also protects your personal belongings and provides liability coverage in case someone is injured on your property. Without it, you could be left facing steep out-of-pocket costs.

What should I look for in my first home insurance policy?

According to MarketWatch, you will want to look at coverage, cost, and reputation when considering home insurance policies. When choosing your first homeowners insurance policy, a good place is understanding the three main coverage areas of a policy.

3 Main Coverages in a Typical Home Insurance Policy

1. Dwelling coverage protects the structure of your home—walls, roof, floors, built-in appliances, and attached structures such as garages or decks—from covered losses as a result of a fire, windstorm, or vandalism. Your coverage should reflect what it would cost to rebuild your home, not its current market value. That means factoring in labor, materials, and construction costs in your area. Most insurance companies can help you estimate what it will likely cost to rebuild your home in the event of a covered loss.
2. Personal property coverage in a home insurance policy protects your belongings—furniture, electronics, clothing, kitchenware, jewelry, and more—if they're damaged, destroyed, or stolen due to a covered peril such as fire, theft, or vandalism. This coverage should be enough to ensure that you have enough money to replace your items in the event of a covered loss.
3. Liability coverage is one of the most important components of a homeowners insurance policy. It protects you financially if you're held responsible for someone's injury or damage to their property. This coverage helps pay for medical expenses, repair costs, and legal fees if you're sued.

Once you're covered these three main areas, you'll want to make sure that the policy includes coverage for additional living expenses (ALE). This coverage helps pay for temporary housing if you are unable to live in your home due to a covered loss. Additional living expenses coverage (also known as loss of use) is typically a percentage of your home's dwelling coverage. For example, if your dwelling is $300,000 with an ALE of 20%, your ALE amount would be $60,000.

Next, you'll want to turn your attention to deductibles. A deductible is the amount you pay out-of-pocket before your insurance kicks in to cover a claim. For example, if your deductible is $1,000 and you have $6,000 in covered damage, you pay $1,000 and your insurer pays $5,000 (what you pay out of pocket before insurance kicks in) and make sure it fits your budget.

Lastly, be sure and read the fine print in your policy and if you have questions, ask your independent agent or call customer support at your insurance company. Your agent and insurance company can help you understand coverages, limits, and deductibles so that you have the right protection.

What if I live in an area where floods and earthquakes are common?

Most standard homeowners insurance policies don't include coverage for flood or earthquake damage. These types of natural disasters require separate policies because they pose unique risks that are typically covered under general home insurance.

If you live in an area prone to flooding or earthquake activity, you may want to consider purchasing flood insurance through the National Flood Insurance Program (NFIP) and earthquake insurance from a private insurer.

Does home insurance work with my mortgage escrow?

Yes, homeowners insurance often works hand-in-hand with your mortgage escrow account. When you take out a mortgage, your lender typically sets up an escrow account. This account collects a bit of extra money each month from your mortgage payment to cover recurring costs such as homeowners insurance and property taxes. Think of it as a built-in savings account dedicated to those specific expenses.

For example, when your annual homeowners insurance premium comes due (typically once a year), your lender uses the funds in the escrow account to pay your insurance company directly. That means you don't have to worry about remembering to make the insurance payment because it's handled automatically as part of your monthly mortgage.

How do I get home insurance?

Getting homeowners insurance for the first time is easier than you might think. The following five steps can serve as a guide in securing your first policy.

1. Understand the basics Most homeowners insurance policies will cover your home's structure, personal belongings, and liablity if someone gets injured on your property. If you have concerns about specific coverage, write them down and address them with your agent.
2. Gather your home details. Before getting quotes, you'll need to have specifics about your new home such as the square footage, age, and location. You'll also want to note any safety features (e.g., smoke detectors, security system).
3. Shop around for quotes. Compare prices and coverage (apples to apples) from different insurance companies. You can do this online, through an agent, or by calling insurers directly. Check if you're eligible for any discounts on your home insurance!
4. Select a policy. Pick the homeowners insurance coverage that fits your need and budget. Your new insurance company will guide you through the necessary paperwork and payment setup.
5. Provide insurance information to your lender (if applicable). If you have a mortgage and the home insurance premium will be paid through your escrow account, your lender will need to have your policy information.

2 quick ways to get home insurance for the first time

1. Get a quote for homeowners insurance online at Liberty Mutual.
2. Call for your homeowners insurance quote, so our representatives can walk you through the process: 800-295-1722.