Choosing Your First Homeowners Insurance: A Beginner’s Guide

Homeowners insurance

Homeowners insurance is the best way to protect your investment, as it ensures that serious damage to your home will not leave you out of pocket entirely. Furthermore, lenders require it if you want to get a mortgage.

As you prepare for your closing date, make sure you have the proper policy in place. This guide will walk you through what type of home insurance coverage to look for, how to buy a policy, and various ways to save money and find something that fits your budget.


What Exactly Is Homeowners Insurance?

Homeowners insurance provides financial protection for your home. If an accident or disaster occurs in your new home, your insurance policy will assist in covering the costs.

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Homeowners insurance covers the structure of your home, but it may also cover your belongings, landscaping, and other structures. It may also cover damage done to someone else (or their property) while on your property.

What does a homeowners insurance policy cover?

Homeowners insurance protects much more than your house. Policies typically cover your personal belongings as well as any additional expenses that may arise as a result of an unexpected event, in addition to the home itself.


First and foremost, homeowners insurance protects your home’s physical structure: its walls, roof, foundation, and anything else considered property.

If your home is damaged, dwelling coverage will pay to repair or rebuild it. However, not all potential sources of damage are covered. Each policy specifies which perils are covered and which are specifically excluded, which may include vandalism, weather events, and natural disasters. If your home is damaged as a result of an uninsured peril, your insurer will not pay for repairs.

Personal belongings

Everything you keep inside your home, from furniture to clothes to electronics, is covered by the personal property coverage section of your homeowners insurance policy. This coverage assists in the replacement of your personal belongings if they are stolen as a result of a covered peril, regardless of whether they were on your property at the time.

It’s worth noting that high-value items like jewelry and art are usually only covered up to a certain point. If you have a large collection of valuables, you may need to purchase additional coverage, known as a policy endorsement.


If you, your family members, or your pets injure or damage another person’s property, you could face a costly lawsuit.

Liability coverage is included in homeowners insurance, and it covers your court costs as well as the amount awarded to the person who sues you, up to the policy limit.

Medical expenses

Visitors who are injured on your property may sue you for the cost of their medical treatment.

You won’t have to pay the majority of those expenses out of pocket if you have homeowners insurance with medical payments coverage.

Extra living expenses

If your home sustains significant damage, it may become temporarily unlivable while being repaired or rebuilt.

In the meantime, a homeowners insurance policy that includes coverage for additional living expenses will reimburse you for lodging, food, and other necessities.

What will your first home insurance policy cost?

The cost of homeowners insurance varies.

Insurance companies calculate them by taking into account a number of factors, including: home value, coverage options, and so on. location, home age, specific features of the home, additional structures on the property, property condition, and liability risks (pools, trampolines, etc.).

The average annual premium for a $250,000 home in 2020 was $1,477. Insurance companies provides a list of average annual premiums by state, which can help you understand what to expect in your area. The majority of homeowners pay an annual premium, but you may be able to spread your payments out.

What kinds of home insurance are there?

Homeowners insurance policies do not come in a single size. Insurance companies provide a variety of standard policies, each with varying amounts and types of coverage.

The policy you select will be determined by the type of home you purchase, the requirements of your lender, and the amount of coverage you require.

HO-1: Basic Form

HO-1 policies are the most limited type of homeowners insurance available. They only cover ten essential perils such as fire and theft. Personal property and liability coverage are not included. This insurance option is no longer available in the majority of states.

Advantages: Extremely low cost

Cons: Not available in most states, and lenders do not accept it.

HO-2: Broad Form

Although many insurers do not offer it, a HO-2 policy is the most basic type of home insurance coverage available in most places. An HO-2 policy covers your dwelling, personal property, liability, medical payments, and additional living expenses against 16 named perils.

Advantages: Low cost, available for older and mobile homes

Cons: Difficult to locate, limited coverage

HO-3: Special Form

An HO-3 policy is the most common type of home insurance. Instead of limiting coverage to a few perils, the policy only mentions exclusions; all other perils are covered. HO-3 policies insure your home, additional structures, personal property, liability, medical payments, and extra living expenses. Personal property, on the other hand, is only covered against listed perils and at its actual cash value for damages.

Advantages: Low premiums, protects your home from most perils

Cons: Limited personal property perils, low policy limits, only pays actual cash value.

HO-4: Table of Contents Formalized Form

HO-4 is also known as renter’s insurance. As a result, HO-4 policies are designed specifically for those who rent or lease an apartment, home, or condo.

Renter’s insurance protects a renter’s personal property (at replacement cost) against the same named perils as a HO-3 policy. Renter’s insurance will usually cover your living expenses if your rented home becomes unlivable due to damage caused by a named peril, such as a fire, and you need to find a new place to live.

Liability coverage may or may not be included in a HO-4 policy.

HO-5: Comprehensive Form

If a HO-3 policy does not provide enough coverage, a HO-5 policy is the next step up. This insurance provides coverage similar to HO-3 but insures your personal property on an open peril basis. You will also be reimbursed for the cost of replacing items that are damaged or stolen.

Advantages: Better personal property coverage, replacement cost reimbursement

Cons: Costs more than HO-3.

HO-6: Unit-owners Form

Condo and townhome owners require a specialized homeowners insurance policy known as a HO-6 policy. This policy is intended to supplement the policy carried by your HOA and primarily protects non-structural aspects. Roof damage, for example, is not covered because it is considered community property.

Advantages: This is the only type of policy that covers condos and townhomes.

Cons: Relies on additional insurance coverage provided by your HOA’s insurance policy.

HO-7: Mobile Home Form

Mobile and manufactured home owners have their own type of insurance in the form of a HO-7 policy. The dwelling, your personal property, loss of use, liability, and medical payments are all covered by HO-7. Only named perils are covered; earthquakes, hurricanes, and flooding are not among them. If you live in a high-risk area, you will need additional coverage for these.

Advantages: Customized coverage for mobile and manufactured homes

Cons: Does not cover specific perils such as hurricanes and flooding.

HO-8: Modified Coverage Form

If you own an older house, you might only be able to get a HO-8 policy. Historic properties are frequently deemed too dangerous for standard home insurance, so insurers provide HO-8 coverage instead. This type of policy only covers ten named perils, leaving out problems that are common in older homes, such as frozen systems and falling objects. In addition, if your home is destroyed, you will only receive the cost of rebuilding it, even if this amount falls short of its market value.

Advantages: A more affordable alternative to standard home insurance for older homes.

Cons: Only covers ten perils and does not compensate for total loss at market value.

Factors influencing home insurance rates

Homeowners insurance premiums are calculated on an individual basis. Insurance companies use a variety of factors to determine how much you’ll pay. As an example:

  • The structure of your home — Your home’s size and construction determine how much your insurance company must pay to repair or rebuild it after a covered loss. Larger homes, as you might expect, cost more to insure than smaller ones. Disaster-resistant construction, such as a reinforced roof, can, however, help to reduce costs.
  • Your personal information — When you sign up for coverage, your insurance company will ask you a series of detailed questions, many of which will be used to calculate your rate. In most cases, if you’re married, don’t have any pets, or have good credit, you’ll pay less.
  • Your policy deductible — When you file a claim, you must pay a portion of the claim total before your insurance company reimburses you, which is known as a deductible. Your premiums will be higher if you have a lower deductible.
  • The insurance company — Because each home insurance provider determines how to calculate its rates, no two quotes will be identical. Before selecting a policy, Coverage recommends comparing quotes from multiple insurers.


Most home buyers require homeowners insurance in order to finance and purchase their new home.

You will need to request a specific type of policy from your insurance provider based on the type of property you purchase. Each policy type provides a different level of protection.

To get the best rate, get quotes from multiple insurers.

Obtaining homeowners insurance for your new home is not as difficult as it appears. Most insurers are happy to walk first-time buyers through the process of obtaining the appropriate coverage, so don’t be afraid to ask questions. As long as you don’t wait until the last minute to shop for home insurance, you should have no trouble finding a policy before your closing date.

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Choosing Your First Homeowners Insurance: A Beginner’s Guide

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