How to compare homeowners insurance quotes

The parts of a homeowner's policy

The Texas Department of Insurance's home insurance guide lists the coverages most policies combine:

• Dwelling coverage pays if the house is damaged or destroyed by a covered peril.
• Personal property coverage pays for belongings that are stolen, damaged or destroyed.
• Other structures coverage pays for detached structures such as garages, sheds and fences.
• Additional living expenses pays costs like rent if you must live elsewhere during repairs.
• Personal liability pays if you are legally responsible for injuring someone or damaging their property, including court costs.
• Medical payments pays medical bills for people hurt on your property, and some injuries away from home, such as a dog bite at a park.

Every quote should show a limit for each. If one does not, ask.

Start with the dwelling limit

The dwelling limit should reflect what it would cost to rebuild your home, not its market price or the loan amount. Land does not need to be insured, while construction costs can exceed a home's sale price in some areas. TDI notes that most companies require you to insure your house for at least 80% of its replacement cost and some require 100%. If quotes use very different dwelling limits, ask each company how it estimated rebuilding cost.

Replacement cost or actual cash value

TDI explains the difference with a roof example. A roof bought 10 years ago now costs $10,000 to replace. With replacement cost coverage and a $2,000 deductible, the insurer pays $8,000. With actual cash value, which subtracts depreciation, the roof might be valued at $7,000, so the insurer pays $5,000 and you cover the rest. TDI recommends replacement cost coverage to be fully protected. Check which applies to the house and which applies to your belongings; they can differ.

Line up the deductibles

Deductibles can be flat amounts or percentages of the dwelling limit, and some policies have separate deductibles for wind, hail or hurricane. A quote with a 2% wind deductible is not comparable to one with a $1,000 deductible for all perils. Convert each to dollars. Lenders also cap deductibles; Fannie Mae's limit is 5% of the coverage amount.

Personal property and special items

TDI notes policies usually set personal property coverage as a percentage of the dwelling limit and limit what they pay for items like jewelry and art. If you own valuable items, ask about adding coverage, often called a schedule or endorsement. Compare those costs across quotes.

Endorsements and gaps

Ask what is excluded and what can be added. Common add-ons include water backup from drains or sewers, extended replacement cost and scheduled valuables. Flood and earthquake damage generally need separate policies.

What affects price

TDI lists factors insurers consider, including location and storm or crime rates, nearness to fire protection, your claims history and, with some companies, your credit. It also notes that insurers use a claims history database that can show past claims on a house, regardless of who owned it. Ask the seller about past claims, because they can affect your quotes.

Ask about discounts. TDI notes companies decide their own discounts, which may include monitored alarms, sprinklers, impact-resistant roofs or newer homes. Ask each company whether combining home and auto policies changes the price.

Shop early

The CFPB's homebuying guide suggests getting an informal insurance estimate before committing to a house, because in high-risk areas coverage could be difficult to find or cost more than expected. Once you are under contract, get at least three quotes, choose a policy and send the declarations page to your lender well before closing. State insurance departments, such as California's, publish consumer guides and premium comparison tools that can help.

The bottom line

Compare quotes only after the dwelling limit, replacement cost terms, deductibles and liability limits match. Insure the home for its rebuilding cost, prefer replacement cost coverage, convert percentage deductibles to dollars, ask about discounts and past claims, and shop early enough to send proof to your lender on time.