Where to get Quotes
One of the first decisions you’ll need to make is who you’re going to contact to get the process started. You now have a significant asset and having the right insurance coverage can save you from financial disaster. Read on to get the complete First Time Homebuyer’s Guide to Insurance.
3 Channels to purchase insurance
- Direct – These insurance companies offer insurance direct through call centers and bots. The idea here is to be cheap and easy. Sometimes they’re cheap, sometimes they’re easy, not very often are they quality. This cookie cutter approach could lead to bad customer service and headaches at claim time. You’re also only getting a quote from one insurance company rather than a comparison of all your options.
- Captive – This is the channel most people are familiar with. They employ insurance agents who’s job is to convince you that their insurance company is the best option for you. There are many options and situations for insurance so rarely is one company actually going to be the best for you. Also, if it’s not the best option, do you think they’re going to let you know that? These are the big companies that spend huge money on advertising like State Farm, Allstate & Farmers.
- Independent Agency – This is an insurance agency owned independently from insurance companies. They contract with many insurance companies and offer comparisons of price and coverage to their customers. This is truly the best way to purchase your homeowners (and auto) insurance. Of course like any industry, there are good ones and bad ones, but this is hands down the best way to purchase. Here’s a dirty little secret we’ll let you in on. Some of the old-school captive insurance companies are now offering their insurance through independent agents. In the “Amazon” era, they know customers want options and don’t want to be sold a product by a company.
What to look for in your quotes
Ok, so now that you’ve smartly decided to work with an independent agent, here are some things to look out for in your homeowners insurance quotes.
This is the amount of coverage available to rebuild your home. This is very important and where most people get it wrong. The coverage limit should be adequate to REBUILD your home. The cost to rebuild your home is not the same as how much your home is worth on the market. For example, let’s say your home would sell for $250,000. That number represents what someone else is willing to pay for your house. That does not mean it can be built for that amount. Real Estate fluctuates just as construction labor and material costs do. We have many clients who have bought homes for $250,000 but the rebuild cost is $400,000. Also, consider that a homebuilder can’t rebuild a single home as cheap as they build them when they’re doing an entire neighborhood. They now have to bring out all the construction equipment for a single job site making the rebuild cost higher. You’ll want Replacement Cost Coverage, not Actual Cash Value. Actual Cash Value will take into account depreciation and will not provide adequate coverage to rebuild your home.
Our minimum recommendation: No lower than the amount calculated by your insurer
Covers other structures on your property such as a fence or shed. This coverage will be built-in but make sure you increase it if you have a very nice fence or a larger shed of significant value.
Our minimum recommendation: $10,000
These are all the things inside your home that aren’t permanently affixed like clothing, furniture and electronics. A good rule of thumb here is your personal property value is typically between 50% – 75% of your dwelling but take your specific needs into consideration. If you have higher value items such as jewelry, art or firearms, it’s unlikely this coverage will be sufficient for those items. You’ll want to speak to your agent about “Scheduling” these items separately. Same here as the Dwelling Coverage above, you want Replacement Cost, not Actual Cash Value. It’s not worth the few bucks you’ll save for watered down coverage.
Our minimum recommendation: 50% with Replacement Cost Coverage
Additional Living Expenses
Helps pay temporary living expenses while your home is being repaired and cannot be occupied. Some policies will have a dollar amount and others an amount of time. For example, you could have a $60,000 coverage limit. This means you have a maximum of $60k no matter how long it takes for your home to be repaired. If you have a time limit of 12 months this means the policy doesn’t have a dollar amount limit however will stop paying your living expenses after 12 months regardless if your home repairs are complete or not.
Our minimum recommendation: 12 months or 20% of the Dwelling Coverage Limit
Pays if you are legally liable for injuring someone or causing property damage unintentionally or through neglect. Common claims are dog bites and slip and falls. This coverage does not apply to your household members.
Our minimum recommendation: $300,000
This provides coverage for injuries occurring on your premises to persons other than your household members. The benefit to this coverage is that payment is made regardless of legal liability. In other words, you don’t have to be sued for coverage to kick in. This is nice because if you have a friend or family member injured on your property you don’t want to have to go through the process of having them sue you.
Our minimum recommendation: $5,000
Sewer and Water Back-Up
This one gets a lot of people into trouble. In most cases, it is not included in your policy. It provides coverage when a loss occurs caused by water which backs up through, or overflows from, a sewer, drain, sump pump or any system used to remove subsurface water from the foundation area. You always want to purchase this coverage even if your basement isn’t finished. You still have valuable items that can be damaged such as heating and cooling systems and storage items. There’s also the cost of cleanup and possible remediation.
Our minimum recommendation: $5,000. Consider significantly more for a finished basement.
Covers damage to the home caused by earthquake. The deductible is separate and is typically around 10% – 20% of the Dwelling Coverage amount.
Earthquake Deductible: 15%
$300,000 x .15 = $45,000
A $45,000 deductible might seem crazy but the purpose of this coverage is to protect against large claims. The cost of this coverage is going to vary widely depending on where you’re located.
Our minimum recommendation: Add to policy with a 20% deductible
Flood is not a part of any homeowners insurance policy. It is purchased as a separate policy and unfortunately many people have learned this the hard way. Even if you don’t live in a designated flood plane you may want to consider flood coverage due to being close to a neighborhood pond or creek. Not sure if you’re in a flood plane? You can check by address with FEMA here.
Our minimum recommendation: If you’re in a flood zone, purchase. If not, it’s a case by case basis.
Insurance is a complex product with many options. So how do you choose? We still like to think insurance is a people business. So, look for an agency that aligns with your values and interests. If you receive a quote and are thinking about moving forward, call the agent and have a quick chat. Do they sound like someone you want to do business with? Were you able to have a genuine conversation or did they sound like a call center agent. This will give you a good idea of the type of service you will receive going forward.
We hope this First Time Homebuyer’s Guide to Insurance was helpful. Other articles you may like:
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