Whether you’ve just begun searching for a new place or you’re waiting to close on your dream home, one important aspect of moving you can’t ignore is insuring your investment.
Enter the homeowner’s best friend: the homeowners insurance policy.
Just like any other kind of insurance, there’s no such thing as a one-size-fits-all policy. Home insurance policy costs typically depend on the home’s location and age, the size of the deductible, and the coverage level. You’ll have to look at these and other variables to figure out what kind of home insurance is right for you—and how much you’ll shell out for it.
1. It’s all about location, location, location
Along with size, construction type, and overall condition of the house, location plays a big role in the cost of insurance and types of policies available. But unlike home buyers, insurance companies aren’t checking out school districts, awesome nearby restaurants, or your commute time.
But others factors do come into play. Homes located near highly rated, permanently staffed fire departments (and even fire hydrants), for example, may cost less to insure, says Loretta Worters, vice president of communications for the Insurance Information Institute.
And of course, proximity to the coastline is also weighed heavily. You’re likely going to pay a pretty penny for that idyllic spot near the coast.
“Because of the increased risk of catastrophic weather events resulting in claims, it will generally cost more to insure,” Worters says.
On top of a higher policy cost, coastal home insurance policies could include a separate hurricane or windstorm deductible based on the fees to rebuild a home.
2. You might want flood insurance—even if you think you don’t need it
Damage from flooding isn’t covered by typical home insurance policies. Any home located in an area prone to flooding requires separate flood insurance to cover these kinds of claims. (Flood insurance is available from the federal government’s National Flood Insurance Program as well as a handful of specialty insurers.)
Don’t live in a flood zone? Don’t assume you’re off the hook. Flood insurance may be a smart option for any homeowner, regardless of zoning—and if you’re not in a high-risk zone, you can probably snag some lower premiums.
“Ninety percent of all natural disasters in the U.S. involve flooding,” Worters says. “However, 25% to 30% of all paid losses for flooding are in areas not officially designated as special flood hazard zones.”
3. That goes for earthquake insurance, too
Californians aren’t the only ones who have to worry about earthquakes—in fact as many as 39 states have experienced tremors, according to data from the Insurance Information Institute. And the resulting damage usually isn’t covered by traditional home insurance policies.
Homeowners need to purchase an addition to their home insurance policy to cover
any earthquake-related claims. The cost varies by location, insurer, and the type of structure being covered as well as age of the building, Worters says.
4. Have a pool? Dive into extra protection
Ahh, your new home has a fabulous swimming pool and hot tub. Yay for you! We’d love to come over—but before we do, you should look into bumping up your liability insurance.
Liability coverage is the part of a home insurance policy that may pay court costs or other expenses if you’re found responsible for an accident, such as someone drowning or suffering a serious injury after doing a cannonball into the shallow end of your pool.
Another option: You can purchase an umbrella liability policy to provide a level of protection not typically available with standard home insurance policies.
5. Your home’s claim history matters—even from when you didn’t live there
Whether you’ve just begun your home search or lived in your home for years, it’s never too late to get familiar with your home’s claim history—and how it might be affecting your homeowners insurance rates.
It’s all summed up in a nifty database called the Comprehensive Loss Underwriting Exchange, or CLUE. Essentially the equivalent of a credit report for your home, the CLUE contains all kinds of records of insurance claims on the house.
That’s important to know because a claim filed for the property in the past five years could cause your rates to inch upward, even if you didn’t own the home at the time of the claim.
But take heart, dear home buyer—not all prior claims have a negative effect.
“Some recent claims can have a positive impact, because replacing a roof damaged by a windstorm could make the house more desirable to an insurance company,” Worters says.
If you’re looking to buy a home and want a copy of the CLUE report, check with the sellers (only the owner of a property may access its CLUE report). There’s no guarantee they’ll fork it over, but there’s no harm in asking. If you already own the home, you can get a free report from database giant LexisNexis.
6. A high deductible can really pay off
It should come as no surprise that you’ll want to shop around before committing to a policy. Compare the rates, deductibles, and coverage options of at least two to three companies to make sure you have adequate coverage for your situation.
Pro tip: Pay close attention to the size of your deductible.
“It’s recommended to opt for the highest deductible you can afford because most people only file a claim every eight to 10 years,” Worters says. “A higher deductible saves money year after year and encourages only using insurance in catastrophic situations when it’s truly necessary. And that also helps keep your costs affordable.”