Buying a new home is one of the most exciting financial opportunities of your life, but it’s also one of the most complicated. You’ll get to choose the perfect home for you and your family, and make an investment that’s highly likely to pay off in the next several years, but you’ll also need to crunch a lot of numbers and make the right complementary investments to pull it off.
For example, one of the most important investments for a home is also one of the hardest to understand (at least for newcomers)—home insurance. You need a high-quality insurance plan to protect your investment, but with so many options on the market, how are you supposed to decide?
The Most Important Factors to Consider
You can narrow down your decision more easily by considering these important factors:
- Your home. First, consider the type of home you’re getting, since your home insurance costs will vary dramatically based on your type of home. For example, a home in an area with high crime rates, or one that’s prone to flooding will be much more expensive to insure. Older homes, with older wiring and other faults, may also be more expensive. This is one of the main reasons Green Residential recommends against “falling in love with a house” early on—even if you love its charm and can afford its main price, the peripheral costs could make the house wholly unaffordable.
- What home insurance does (and doesn’t) cover. You’ll also want to look closely at the types of things that are covered (and not covered) by a given policy. Policies will differ significantly, but most follow a general structure. According to Allstate, most home insurance policies cover damage and destruction to your property, other structures on your property (such as exterior buildings), personal property within your home, and personal liability (in case someone is harmed on your property). However, not all policies cover all types of damage; for example, most areas require separate flood and/or earthquake insurance.
- Your individual provider. Next, take a look at the individual providers offering the plans you’re considering. Not all insurance companies are equally easy to deal with. You’ll want to choose a provider with a long history of success and a strong reputation for customer service. Read up on reviews before making your choice.
- Your deductibles. Your deductible is the amount of money you’re required to pay as part of a claim before the insurance company starts paying for the rest of it. It’s going to vary based on your individual plan; generally, the higher your deductible is, the lower your monthly costs will be, and vice versa. Make sure you consider your financial position, including whether you have emergency savings, before you decide where to fall on this spectrum.
- Replacement costs vs. cash value. Next, consider whether the policy will cover the replacement cost of your home or its actual cash value (in the event of a claim). Replacement cost refers to the amount of money it would take to replace and/or repair your home, without deducting for depreciation. Cash value will only reimburse you for the depreciated cost of your home.
- Potential discounts. Take some time to research special discounts or offers with your home insurance provider. For example, many providers offer a discount on home insurance if you also have a life insurance or car insurance policy with the provider. Stacking your insurance with one provider makes it easier to manage, and might end up saving you money in the long run.
- Policy stipulations. Finally, you’ll need to take a close look at the fine print on your insurance policy before you finalize the deal. It’s a tedious step, and sometimes a confusing one, but it’s worth it to make sure you’re covered for everything you think you’re going to be covered for. Compare the policy to others online, and if you’re confused about anything, ask your insurance agent. You need to understand all the terms and conditions before proceeding.
Finding the Perfect Fit
There’s no such thing as a “perfect” home insurance plan, because every home—and every homeowner—is different. But with these selection criteria, you’ll be able to whittle down your list of potential insurance plans and eventually end up with the one that serves you best. Do your research, interview plenty of candidates, and make sure you crunch the numbers. After you’ve done that, you can break any ties you encounter by trusting your gut.