How to Get Home Insurance for First-Time Buyers
To get home insurance as a first time home buyer, you can work with an insurance agency or get quotes online. Then, you need to send the policy to your mortgage company before closing.
Find Cheap Homeowners Insurance Quotes in Your Area
If you will have a mortgage, you have to get a home insurance policy. Even if you buy your home outright, you should probably buy home insurance so you don't have to pay for expensive repairs or rebuilding costs yourself. Learning about home insurance can help you shop for quotes and make sure your policy fits your needs.
How does home insurance work?
Home insurance pays for damage to your house and belongings after certain events that cause destruction.
For example, if you have a home insurance policy and your house burns down, your policy will reimburse you for the loss of your home and your stuff. Depending on the details of your policy, the payout is often enough to rebuild your house and repurchase all your belongings.
Home insurance policies have several different coverage types. Each type of coverage on the policy protects a different part of your property.
Dwelling coverage protects your home's physical structure from situations such as fire, wind, hail and vandalism.
Personal property coverage protects your belongings, including furniture, books and electronics.
Other structures coverage protects buildings on your property such as detached garages, sheds or pool houses. It also covers structures including fences and gazebos.
Personal liability coverage protects you against lawsuits if you're at fault for someone's injuries or damage to their stuff that occurred on your property.
Medical payments coverage pays a small amount toward medical bills when someone's hurt in your home, whether you're at fault or not.
Additional living expenses coverage, also called loss of use coverage, reimburses you for having to stay in a hotel or rental home while your home is being repaired.
But home insurance only covers certain types of damage. Damage caused by fire, theft, wind and some water-related events is usually covered, but floods and earthquakes typically aren't.
Knowing what's not included in your policy is just as important as knowing what is.
Some first-time homeowners may need extra insurance coverage on top of their home insurance.
- Flood insurance: Homes along the coast or near lakes or rivers might need flood insurance. Even if your home is not in a flood zone, you may want to buy a policy because home insurance doesn't cover flood damage.
- Earthquake insurance: If your home is near a fault line or your area has a history of earthquakes, you may want to get an earthquake policy. If you're in a lower-risk area, you can often add earthquake coverage to your home insurance instead of buying a separate policy.
- Scheduled personal property: High-value belongings, such as expensive jewelry, artwork and electronics, might not have enough coverage under a standard home insurance policy. To protect these items, add scheduled personal property coverage. This is usually a rider, but it can sometimes be a separate policy. You'll need to show your insurance company a receipt or appraisal as proof of the value of each item.
- Water backup coverage: If you have a basement, consider adding a water backup rider to your home policy. This optional coverage will pay out if your basement or any other part of your home is damaged by water that backs up in a sewer or drain line. While this can happen to any water line, it's more common in basements when sump pumps can't keep up with heavy rain.
How much homeowners insurance do you need?
You typically want enough home insurance coverage to fully rebuild your house and replace all your belongings, in case something catastrophic happens.
However, you won't usually be able to pick many of your coverage limits. Insurance companies use tools to evaluate your cost to rebuild, and that number becomes your dwelling coverage. Most of your other coverage limits are based on the dwelling number.
But you can choose your liability and medical payments amounts, as well as your deductible amount. And if you add any riders to your policy, you might be able to choose coverage limits.
Dwelling insurance
The limit for dwelling insurance should be enough to rebuild your house if it's destroyed completely.
This isn't the same as the purchase price of your new home, and it probably won't be the same as your mortgage amount either. But you don't need to worry about choosing this number yourself. Insurance companies have tools to estimate the replacement cost of your home. When you review your quotes, you'll see the amount they think is appropriate. If you think it's too high or low, you can work with them to refine the number.
Many companies offer riders that extend your dwelling coverage by 25%. That means if your home is destroyed and it costs more than your dwelling amount to replace it, you'll get up to 25% more in a claim payout. You might even be able to get a policy that will rebuild your home no matter how much it costs. This is called "guaranteed replacement cost."
Personal property insurance
Personal property is based on your dwelling amount. Usually, it's between 20% and 50% of the amount of dwelling coverage you have.
This is usually enough for most people, but it's still a good idea to make a home inventory and record the prices of all your stuff. This way, you can make sure your policy offers enough coverage to replace your furniture, clothing and other valuables.
Also, pay attention to whether your policy has replacement cost or actual cash value for your items. With replacement cost, the insurance company will replace your items with new ones. It's more expensive, but it's better coverage. With actual cash value, depreciation is taken out of your claim payout and you only get the amount your stuff is truly worth. This gives you a cheaper rate but can make it hard to replace your belongings if they're destroyed.
Other structures
Other structures coverage applies to any buildings on your property not attached to your home, such as sheds and detached garages. It also covers items such as fences. Other structures coverage is usually automatically set at 10% of your dwelling limit. So if your home costs $250,000 to rebuild, your other structures coverage is automatically $25,000.
However, most companies let you increase that amount if you need more coverage. Think about the detached structures that come with the house you're buying and how much they might cost to rebuild.
Liability and medical payments coverage
Your options for liability coverage usually start around $100,000 and often go as high as $500,000. If you want more coverage, you could consider an umbrella policy.
Medical payments coverage usually starts at around $1,000 and goes up to $10,000 or $25,000. Some companies may offer more.
To pick the right liability and medical limits for your policy, think about the potential ways people could get hurt or have their belongings damaged at your new home. Common risks include pools, swing sets and trampolines. Also, if you plan to have guests over often or have a dog, higher liability and medical limits are a good idea.
Additional living expenses
Additional living expenses coverage can cover the cost of a hotel or rental house while your home is being repaired. Usually, the coverage is set at 10% to 30% of your dwelling amount, depending on the company.
If you think you need more coverage, talk to your insurance company to see if it can increase the amount. It's helpful to think about what you would want and need if you couldn't stay in your home while it was being repaired. Some homeowners can make do with a small hotel room, but a family with work-from-home parents would likely want a larger rental home.
How to shop for homeowners insurance
Shopping for home insurance might seem intimidating if you've never done it before, but it can actually be a pretty straightforward process. You can start by researching the companies in your area and looking into their customer satisfaction rankings. Next, get quotes, either online or from an agency. Finally, review the quotes to see which one best fits your needs.
Step 1: Make a list of insurance companies you're interested in
Maybe you've heard great things about State Farm and Allstate, and you like that you can go into a local agency. Or maybe you want a more online experience, and your friend got insurance from Lemonade. Making a list of companies you've heard about and are interested in can help you narrow down your options.
And remember, the best home insurance company for you depends on your needs and what companies are available in your area. Some companies are generally better than others, but there isn't one company that is the best for everyone.
List of major home insurance companies
$200,000 dwelling
$350,000 dwelling
$500,000 dwelling
$1 million dwelling
Company | Average annual rate | |
|---|---|---|
| State Farm | $1,084 |
| Erie | $1,246 |
| Chubb | $1,427 |
| Allstate | $1,480 |
| Auto-Owners | $1,547 |
Average annual rate for $200,000 in dwelling coverage. USAA is only available to military members and some of their family members.
$200,000 dwelling
Company | Average annual rate | |
|---|---|---|
|
| State Farm | $1,084 |
|
| Erie | $1,246 |
|
| Chubb | $1,427 |
|
| Allstate | $1,480 |
|
| Auto-Owners | $1,547 |
Average annual rate for $200,000 in dwelling coverage. USAA is only available to military members and some of their family members.
$350,000 dwelling
Company | Average annual rate | |
|---|---|---|
|
| State Farm | $1,514 |
|
| Erie | $1,979 |
|
| Allstate | $2,064 |
| Progressive | $2,133 |
|
| Auto-Owners | $2,167 |
Average annual rate for $350,000 in dwelling coverage. USAA is only available to military members and some of their family members.
$500,000 dwelling
Company | Average annual rate | |
|---|---|---|
|
| State Farm | $1,976 |
|
| Allstate | $2,615 |
|
| Erie | $2,651 |
|
| Progressive | $2,816 |
|
| Auto-Owners | $2,832 |
Average annual rate for $500,000 in dwelling coverage. USAA is only available to military members and some of their family members.
$1 million dwelling
Company | Average annual rate | |
|---|---|---|
|
| State Farm | $3,295 |
|
| Allstate | $4,582 |
|
| Progressive | $4,838 |
|
| Erie | $4,877 |
|
| Chubb | $5,449 |
Average annual rate for $1 million in dwelling coverage. USAA is only available to military members and some of their family members.
The best home insurance also depends on where you live. Some companies, like Erie and Auto-Owners, are only available in certain states. If you're not sure what companies are in your area, working with an independent insurance agent might be helpful. These agents can get quotes from several different companies, which saves you time.
Find the best homeowners insurance in your state
Step 2: Research ratings
Resources such as J.D. Power and the National Association of Insurance Commissioners (NAIC) complaint index can give you insight into how different companies rank for their customer service. Choosing a company with good service can mean you'll have a smoother experience if you ever need to file a claim.
Insurance companies also get financial stability ratings, which show how likely they are to be able to pay out claims. This is especially important if an insurance company gets a large number of claims at once, such as after a natural disaster. Research ratings at AM Best, Demotech, Standard and Poor's (S&P), Moody's and Fitch Ratings, and narrow your list to companies that have an A rating.
Step 3: Get quotes
Now that you've narrowed your list of companies down to the ones that have good service and strong financial ratings, you can start to get quotes.
With some companies, you can get quotes online. Sometimes, though, you have to call or visit an agency. Some companies, including State Farm and Allstate, have their own agencies, and you can get quotes only from the company. But you could also work with an independent agency that contracts with multiple insurance companies. That way, you can get several quotes in one place.
Before you pick up the phone or go to an agency, make sure you have the following info available:
- Personal information, such as your Social Security and driver's license number
- Property address
- Construction details, including square footage, the age of the roof and building materials
- Safety features including sprinklers and alarm systems
- Details about any specialized or extra coverage you may need
Most insurance companies offer savings, even for first-time homebuyers. Some of the most common discounts are:
- Multipolicy discounts for bundling home and auto insurance
- Safety feature discounts for smoke alarms and sprinkler systems
- Security discounts for a monitored alarm system or lightning protection system
- Roof discounts for impact-resistant materials or newer roofs
- Affiliate discounts for belonging to an alumni association or professional organization
Step 4: Compare rates and coverage
Once you have all the quotes, it's time to compare them. When you're buying homeowners insurance for the first time, it's important to remember that the cheapest policy isn't always the best.
Make sure each quote has sufficient coverage for your needs. Going with a low-coverage policy might seem like a good idea to save money, but it could end up costing you more in the long run. If you need to file a claim and your policy doesn't cover the damage or doesn't pay much, you'll have to pay for your repairs out of your own pocket.
Find Cheap Homeowners Insurance Quotes in Your Area
How much is home insurance for first-time buyers?
The average cost of home insurance is $2,151 per year for a policy with $350,000 in dwelling coverage.
But prices change based on where you live and how much coverage you need. Knowing the average cost in your state can help you decide if you're getting a good deal on your quotes.
$200,000 dwelling
$350,000 dwelling
$500,000 dwelling
$1 million dwelling
State | Average annual rate |
|---|---|
| Alabama | $1,831 |
| Alaska | $1,011 |
| Arizona | $1,403 |
| Arkansas | $2,197 |
| California | $1,201 |
Average annual rate for $200,000 in dwelling coverage.
$200,000 dwelling
State | Average annual rate |
|---|---|
| Alabama | $1,831 |
| Alaska | $1,011 |
| Arizona | $1,403 |
| Arkansas | $2,197 |
| California | $1,201 |
Average annual rate for $200,000 in dwelling coverage.
$350,000 dwelling
State | Average annual rate |
|---|---|
| Alabama | $2,717 |
| Alaska | $1,374 |
| Arizona | $1,993 |
| Arkansas | $3,235 |
| California | $1,624 |
Average annual rate for $350,000 in dwelling coverage.
$500,000 dwelling
State | Average annual rate |
|---|---|
| Alabama | $3,630 |
| Alaska | $1,768 |
| Arizona | $2,634 |
| Arkansas | $4,169 |
| California | $2,048 |
Average annual rate for $500,000 in dwelling coverage.
$1 million dwelling
State | Average annual rate |
|---|---|
| Alabama | $6,915 |
| Alaska | $3,036 |
| Arizona | $4,749 |
| Arkansas | $7,247 |
| California | $3,699 |
Average annual rate for $1 million in dwelling coverage.
Do first-time homebuyers need insurance?
Almost all homeowners, including first-time buyers, need home insurance, because most buyers have mortgages.
If you are taking out a mortgage, you will have to show proof of homeowners insurance to close on your new home. That's because mortgage companies require insurance to protect their investment in your home.
If you don't have a mortgage or other home loan, you won't need to provide proof of insurance, but that doesn't mean you shouldn't have it. Home insurance is an important part of your financial plan. It helps make sure you don't have to pay high costs if something happens to your home or belongings, or if someone is hurt on your property.
How soon before closing should I get homeowners insurance?
Most lenders require proof of insurance, called a binder, around three days before closing. A binder is a legal agreement from your company promising to insure your new home as soon as you close.
Insurance binders last 30 to 90 days, which means you can get your policy much earlier than the three-day deadline.
But the start date of your policy needs to be the date you're closing on the home. You can't start your home insurance any sooner than that because you don't legally own the home yet. Just make sure you start shopping for home insurance at least a month before you're scheduled to close on your new home. That gives you time to get and review quotes, choose a policy and start the policy on your closing date.
Frequently asked questions
How much is insurance for a first-time buyer?
Home insurance costs $2,151 per year, on average, for a policy with $350,00 in dwelling coverage. Your rates depend on where you live, how much coverage you need, the details of your new home, whether or not you've filed a claim in the past and more.
When do you get homeowners insurance if you're a first-time homebuyer?
You should start shopping for a home insurance policy at least a month before you're set to close on your new home. That way, you have time to get quotes from several companies and compare them in order to choose the best option. You'll probably need to show proof of coverage, called a binder, to your mortgage company a few days before closing. That way, the mortgage company knows your coverage is ready to start on the day you close.
What is the first step when buying homeowners insurance?
Your first step when getting home insurance for the first time should be to decide which companies you want quotes from. You can research different companies in your area or contact an independent agency that works with multiple insurance companies. Once you have quotes, you can review them with your agent to pick the best option for your needs.
Methodology and sources
To find the average cost of home insurance, ValuePenguin got rates from the largest homeowners insurance companies in every state for every residential ZIP code in the country.
The quotes are for a 45-year-old married man who has good credit and no home insurance claims on his record. Rates are for the following coverage limits:
- Dwelling coverage: $200,000, $350,000, $500,000 or $1 million
- Personal liability: $100,000
- Medical payments: $5,000
- Deductible: $1,000
All rates are from Quadrant Information Services and come from publicly sourced insurance company filings. The costs on this page are for comparison purposes. Your rates will likely be different and based on your specific circumstances.
Editorial Note: The content of this article is based on the author's opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.
