Homeowners insurance basics for first-time buyers

What a typical policy includes

Policies vary, but most standard homeowners policies have several parts:

• Dwelling coverage for the structure itself
• Other structures, such as a detached garage or fence
• Personal property, your belongings
• Loss of use, extra living costs if you cannot live in the home after a covered loss
• Personal liability and medical payments if someone is hurt on your property

Each part has a limit, and most claims are subject to a deductible.

What standard policies leave out

The CFPB notes that standard homeowners insurance does not cover damage from earthquakes or floods, though it may be possible to add coverage. Many policies also limit or exclude:

• Gradual leaks and maintenance problems
• Sewer or drain backup, unless you add an endorsement
• Certain high-value items, such as jewelry, above a sublimit

Flood insurance is available through the National Flood Insurance Program and private insurers. Check the property on FEMA's flood map, and ask for a flood quote even if the home is outside a high-risk zone.

How the premium is paid

Many homeowners pay insurance through an escrow account as part of the monthly mortgage payment. At closing you usually prepay the first year's premium and fund the escrow account. After that, the servicer collects a monthly share and pays the insurer when the renewal bill comes. If the premium rises, your escrow payment usually rises at the next annual review.

Comparing quotes

Give every insurer the same information: dwelling limit, deductible, liability limit and any endorsements you want. Ask how each insurer estimates the cost to rebuild, since dwelling coverage should reflect rebuilding cost, not the market price of the home. Ask about discounts and how claims are handled.

Timing

Start shopping when you go under contract. Some insurers need an inspection report or roof details, and some homes are harder to insure because of age, roof condition or location. Learning that late can delay closing. Your lender will need the policy declarations and the insurer's contact details before closing.

After you move in

Keep the declarations page with your closing documents and note the renewal date. Make a quick video inventory of your belongings, room by room, and store it outside the home. Review the policy each year at renewal, especially after improvements such as a new roof or an addition, because the cost to rebuild may have changed. If the premium jumps, shop the same coverage with other insurers and let your servicer know if you change companies, so the escrow account pays the right one.