When my wife and I were preparing to buy a house this year, we had no idea what we were doing. We’d never bought a house before, and there’s only so much you can learn without going through the experience yourself.
So, when the loan officer was setting up our escrow account and asked where we wanted to get our homeowners insurance, I immediately responded with the name of the company we get our car insurance through.
For starters, it’s easy to have both policies in one place, and I knew we’d get a multipolicy discount. In hindsight, however, I realize it might not have been the best choice.
How to choose the best homeowners insurance policy
Several factors go into a homeowners insurance premium, and getting the best rate requires some work. Here are seven tips for finding the best homeowners insurance policy for your needs.
1. Shop around
The first thing you should do when you research the best homeowners insurance is compare policies from several insurance companies.
Specifically, look at the different coverages, limits, deductibles, and exclusions. For example, no homeowners insurance policy will cover damage resulting from the following:
- General wear and tear
The cheapest policy might not offer the best value, especially if it comes with high deductibles and subpar coverage.
In other words, avoid sacrificing protection just to get a slightly lower monthly premium.
2. Ask about discounts
Insurance companies offer discounts to entice homeowners, but they often aren’t advertised in the initial homeowners insurance quotes you get online or by phone.
What’s more, the discounts vary by insurer. For example, Esurance offers a discount if your home has storm shutters on all exterior windows. And State Farm offers a discount if you have certain impact-resistant roofing on your home.
Most insurers also offer a multipolicy discount — when you have an auto insurance policy and a home insurance policy with the same company, for example. Other basic discounts include:
- Home safety discount for homes with a security alarm
- New-home discount if your home was built recently
- Pay-in-full discount if you choose to pay annually instead of monthly
- Smoke-free discount if no one living in the home smokes
The more insurance companies you compare, the more discounts you’ll find that might apply to you.
3. Research the company’s financial strength
When you finally settle on an insurance company, you’ll want to know that it can meet its financial obligations — specifically, paying claims. If the company hits a rough financial patch or goes under in the middle of a claim, you might be left high and dry.
To assess a company’s financial strength, four independent agencies — A.M. Best, Fitch, Moody’s, and Standard & Poor’s — publish financial ratings for major insurance companies.
The following ratings are considered good or better:
- A.M. Best: A++, A+, A, A-, B++, and B+.
- Fitch: AAA, AA, A, and BBB
- Moody’s: Aaa, Aa, and A.
- Standard & Poor’s: AAA, AA, A, and BBB
In many cases, the insurance company shares its financial rating from at least one of the four agencies. Otherwise, you can simply go to the agencies’ websites to do a quick search.
4. Answer all the questions correctly
The application process for homeowners insurance is long, even if you do it online. You’ll be asked about several features of the home. For example, you might see the following questions:
- What materials were used to build your roof?
- Is your garage connected to or separate from the home?
- When were some of the home’s major systems (water piping, air ducts, etc.) last renovated?
- What percentage of the home is carpeted?
Avoid making guesses when you fill out this portion of the application. Answering correctly ensures you’ll get the right policy for your needs.
Note that leaving stuff out, intentionally or unintentionally, can give you an inaccurate quote and an inadequate policy. In some situations, the insurer might even cancel your policy.
5. Know how much coverage you need
If you’re buying a home, the lender typically will have requirements for coverage levels. Make sure you know what those requirements are before you start shopping around.
Next, speak with an agent at one or more insurance companies to get an idea of what you need to have covered. For example, you’ll want to insure your home based on its replacement value, not how much you paid for it. In some cases, it might cost more than the sales price to do a complete rebuild.
6. Evaluate customer satisfaction
Getting the cheapest policy available might not give you any peace of mind if the company is slow when it comes to processing claims.
J.D. Power publishes an annual study on customer satisfaction for the top insurance companies. Its 2017 study ranks the best homeowners insurance companies based on the following factors:
- Overall satisfaction
- Policy offering
7. Boost your credit score
During the application process, insurance companies run a soft credit check to get an overview of your credit history. According to a study by Quadrant Information Services, homeowners with bad credit pay more than double what homeowners with excellent credit pay in premiums.
To get your credit back on track, work to address the issues at hand. Get a copy of your credit report from AnnualCreditReport.com and review it to see what’s dragging your score down.
For example, if you have a delinquent credit account, pay it off. If your credit card balances are high relative to your credit limits, pay them down.
The sooner you start improving your credit, the sooner you can qualify for better rates.
The best homeowners insurance depends on your needs
There’s no one best homeowners insurance policy out there for everyone. That’s why it’s essential that you do your due diligence to find the right one. Know your home in and out and actively search for ways to cut costs without sacrificing coverage.
Since your home is one of your most valuable assets, you’ll want to make sure you get the best protection available.
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