4 Things to Know
When Buying Homeowners Insurance
By Abby Hayes
Buying a home can be so overwhelming that it’s easy for first-time buyers, especially, to give minimal
thought to the homeowners insurance process. Yet, if something happens to your home, homeowners
insurance can make or break you. Before you just sign on the dotted line, here are four tips to guide you:
1. Contact at least three companies to compare coverage. Your mortgage lender can, and probably will,
require you to have homeowners insurance. You may be required to purchase additional insurance –
like flood insurance. You aren’t required to buy from a particular insurance company. Instead, compare
coverage, price and customer reviews. Be sure you get the right type and amount of coverage. Shop for
value, not necessarily rock-bottom price. Since you'll mainly deal with insurance companies during times
of disaster, make sure the company you choose has great customer service reviews.
2. Escrow your insurance payments with your mortgage payments. If you're like most homeowners,
you’ll tack monthly insurance payments onto your mortgage check. The lender will pay your insurance
premiums (usually your property taxes, too) out of your escrow account. Lenders prefer this option because
it lets them know your insurance premiums are being paid, and their investment is well protected. Most
likely, you’ll need to pay for one year of insurance at closing. Bring information about the insurance policy
you have chosen and the money to cover the first year's premium.
3. Make sure you're getting adequate coverage. The most important part of homeowners insurance is
the level of coverage. Avoid paying for more than you need.
Here are the most common levels of coverage:
HO-2 – Broad policy that protects against 16 perils that are named in the policy.
HO-3 – Broader policy that protects against all perils except those specifically excluded by the policy.
HO-5 – Premium policy that typically protects newer, well-maintained homes; it covers against all perils
except those specifically excluded by the policy.
HO-6 – Insurance for co-ops/condominiums, which includes personal property coverage, liability coverage
and coverage of improvements to the owner’s unit. Insurance for the actual structure usually comes through
the association.
HO-7 – Similar to an HO-3 policy, but for mobile homes.
HO-8 – Policy specifically for older homes, with similar coverage to an HO-2 policy. However, it only
covers actual cash value.
4. Understand the details of your policy. It’s not enough to get the right policy level. Before you make a
decision, understand these homeowners insurance terms: