Homeowners Insurance Policies: What To Look For


WRITTEN BY: Mark Romero

UPDATED: SEPTEMBER 23, 2022 | 3 MIN READ

When buying a new home, you often spend lots of time thinking about lenders and realtors, but another factor to consider is your home insurance policy. For most people, a house is their most valuable thing. 

If unexpected events or natural disasters occur, your insurance policy is what you’ll be looking to for help. This isn’t something you pick out on a whim. Here’s what to look for when evaluating your home insurance options. 

Homeowners Insurance What To Look For: Coverage Options

Homeowners insurance aims to cover damages to a home, theft, and personal liability issues. How much an insurer will cover will depend on the specifics of each policy. According to the National Association of Insurance Commissioners, the most basic home insurance policies cover the following circumstances, known as “perils”: 

  • Fire, smoke, wind, hail, lightning, explosions, civil unrest
  • Theft, vandalism
  • Trees and other falling objects
  • Weight of ice, snow, sleet
  • Freezing, rupturing, and sudden overflowing of plumbing, HVAC, or sprinkler systems

Outside of these perils, homeowners will have to add endorsements to their policies to cover additional situations and items, including: 

Not Covered: Earthquake and Flood

It’s important to note that homeowners’ insurance does not flood-related damage. If you live on a floodplain, you will need a separate flood insurance policy administered by the National Flood Insurance Program.

Earthquake damage is also not covered under a basic homeowners insurance policy. While some insurance policies offer an earthquake endorsement, you would likely need to buy a separate earthquake policy if you live in an earthquake-prone area.

Homeowners Insurance What To Look For: Valuing Your Property 

Home insurance policies are based on the value of your dwelling (the house itself) and personal property (items you own). Your home insurance should provide enough coverage to replace your dwelling and personal property. 

The dwelling value should be based on the cost of rebuilding your home. Real estate values (current or what you originally paid) are irrelevant for determining replacement costs.

Using a real estate valuation could leave you with insufficient coverage should you need to rebuild your home. 

You can value your personal property in one of two ways: Actual cash value (ACV) and replacement cost (RC). When using ACV, an insurer pays out claims based on the current value of your belongings.

A claim payout based on RC would cover the cost of buying brand-new items to replace your belongings. 

As you can imagine, an RC policy is more expensive than an ACV policy. How you value your items will depend on how much you think they will depreciate in the future. 

Homeowners Insurance What To Look For: Costs and Deductibles 

If you’re moving or buying a new home, you’re probably concerned about the cost of home insurance. Home insurance carriers base the price of policies on multiple factors, including: 

Your deductible value will also influence the annual cost of the policy. Most insurance policies have a deductible between $500 and $1000. The higher the deductible, the lower the premium. You may want to choose a higher deductible if you live in a newer home in an area with a low risk of severe weather events. 

Bundling: A source of savings

If you’re looking for a more affordable policy, you may consider bundling home and auto insurance with the same company. Many insurance carriers offer discounts for customers with policies across multiple lines of business.

Homeowners Insurance What To Look For Carrier Reputation

When choosing a company to help you protect your home and valuables, you should look beyond cost. An insurance carrier’s reputation should determine if you want to develop a long-term business relationship. Here’s what you should look for: 

Financial health

You don’t want to work with a company that ultimately wouldn’t be able to pay out a claim. Independent rating agencies create reports about the financial stability of organizations. Consider reviewing them. 

Claims history

Reputable home insurance companies should settle legitimate claims promptly. You should check with your state’s insurance commissioner to see how quickly potential insurance companies settle claims. Another important factor is how often an insurance company disputes claims with its customers.  

Retention rate

When customers regularly renew their policies, that’s a good sign that the insurance company is providing good service. If you’re negotiating a policy with a company, ask the representative about customer satisfaction scores and retention rates. You may also find this information in consumer review magazines. 

Customer opinions

There are multiple online review sites where you can read the opinions of home insurance customers. While you shouldn’t completely trust what anonymous people say online, many negative reviews can be a bad sign. An independent agent may also know about particular insurance companies based on the opinions of their other clients. 

How To Get Help With Homeowners Insurance & What To Look For

When it comes time to purchase a home, you want to ensure that you take all the necessary precautions. One of those is ensuring you have the right insurance policy.

There are many factors to consider when picking out your home insurance policy. We’ve outlined some key things for you to look for to make an informed decision. Shopping around for quotes is always a good idea, so get started today!