5 tips for buying first home insurance

Purchasing your first home is an exciting event, but your transaction will not be complete until you select a home insurance policy to protect your investment.

"One of the most common mistakes homeowners make is failing to include insurance on their checklist when looking for a home," says Pete Moraga, a spokesman for the Insurance Information Network of California.

When looking for a home, he recommends looking for a policy that is reasonably priced and covers all of the basic things that can go wrong. Here are five pointers to help you find the right policy while avoiding unnecessary costs:

  1. Know your exclusions

There are a variety of mishaps that aren't covered by standard homeowner's policies, so Moraga recommends carefully reading your policy.

Standard policies do not cover floods, earthquakes, sinkholes, or other earth movements such as mudflows and mudslides. The National Flood Insurance Program (NFIP) allows homeowners and renters to purchase additional flood insurance. The cost will be determined by your risk of flooding. According to Kevin Foley, an independent insurance agent in New Jersey, many homeowners regret not purchasing flood insurance after natural disasters.

Flood damage is one of the most common and expensive problems that a homeowner can face. Even if you don't live near a river or on a floodplain, you could be at risk. According to the Federal Emergency Management Agency (FEMA), approximately 25% of flood claims come from areas with a low to moderate flood risk. FloodSmart.gov can help you determine your home's flood risk.

"Too often, I hear people say, 'If only I had known it was available and how much it cost, I would have spent the money," says Foley.

If you live in earthquake country, Moraga recommends purchasing earthquake coverage as an endorsement to your home insurance policy or as a separate policy. The cost varies by state and is determined by your risk of experiencing an earthquake. Alaska, California, Hawaii, Nevada, Washington, Idaho, Wyoming, Montana, Utah, and Oregon are the ten most earthquake-prone states, according to the US Geological Survey (USGS).

Other common home insurance exclusions, according to Ron Moore, a senior product manager for MetLife Auto & Home, include damage from power outages, sewage drain backups, mold, insects, war, neglect, nuclear hazards, intentional damage, and losses due to poor workmanship or defective materials.

  1. Prepare to pay more if you live in hurricane country

Your home insurance rates will be affected by where you live. If you plan to buy your first home in an area prone to high winds, Moraga advises you to be aware of hurricane deductibles.

Moraga says, "It depends on where you live." "You must be aware of it."

According to the non-profit Insurance Information Institute, hurricane deductibles typically range between one and five percent of the insured value of your home. Insurance companies use them to reduce their losses from widespread storm damage. If you live in the District of Columbia, Hawaii, or states along the Eastern Seaboard or the Gulf of Mexico, you may be subject to these deductibles.

Such deductibles may apply when the National Weather Service names a tropical storm, issues a hurricane warning or watch, or reports the intensity of a hurricane.

  1. Don’t buy too much insurance

Moraga suggests that you can save money by ensuring that you are not over insured. Homeowners frequently believe that their insurance policy should cover the full market value of their home. In reality, the policy only needs to cover the cost of repairing or replacing the home.

"You should never base your coverage limits on real estate values," he advises.

In some cases, the land on which your home is built can account for the majority of its real estate market value. Following a flood or a fire, the land will not need to be replaced. Your goal should be to have only enough insurance to cover the costs of construction.

  1. Avoid force-placed insurance

If you let your home insurance lapse, you may be forced to purchase "lender-placed" insurance, according to Moraga. "That happens when your monthly payments fall behind."

Because your lender has a financial interest in your home, it has the authority to obtain a replacement policy on your behalf. If this occurs, your payments may be much higher than if you had purchased a policy on your own.

According to Michael Barry, a spokesman for the nonprofit Insurance Information Institute, many people pay their home insurance premiums through an escrow account, along with their mortgage payments and property taxes.

Borrowers deposit funds in escrow accounts to fulfill debt obligations associated with home purchases. These accounts ensure that borrowers save enough money to cover homeowner's insurance and property taxes. When insurance and taxes are due, lenders pay them from these accounts.

Also, be cautious if you miss a mortgage payment. "Not paying the mortgage can sometimes result in a lapse in insurance coverage," Barry says.

  1. Look for insurance discounts

According to Barry, insurance companies typically offer discounts if you agree to purchase auto insurance in addition to your homeowner policy. This is referred to as "bundling" your policies.

Insurance companies frequently reward you for taking actions that reduce the likelihood of an insurance claim occurring. Installing a burglar or fire alarm that is monitored by an outside security service, for example, may entitle you to a price reduction.

In addition, inquire about discounts for installing deadbolt door locks, sprinkler systems, or smoke detectors. If you upgrade your plumbing, heating, or electrical systems, you may be eligible for a price reduction.

According to Moore, some insurers will give you a discount just for being a new homeowner. "Don't be afraid to tell them."