How To Choose the Best Homeowners Insurance Policy

Best Homeowners Insurance Policy

Although buying the right home insurance policy may seem complicated, it’s actually a fairly straightforward process. To begin, you’ll need to determine the value of your home and its contents. Then, select a company and policy that provides the coverage options you need at a reasonable price.

Take the following steps to purchase homeowners insurance:

1. Determine how much home insurance you need. Take an inventory of your personal belongings. If you have receipts, file them away. For your home and other structures on your property, get an estimate from your insurance company or a real estate agent for the average rebuilding cost in your area per square foot. 

   Use this information to decide how much coverage you need for your property. The general rule is that you should have enough homeowners insurance coverage to repair or replace your home and everything in it after a total loss.

   Determine how much you might spend on a hotel, meals out, and other living expenses if your home were to be destroyed or become uninhabitable after a disaster. The Insurance Information Institute (III) can help walk you through the process, as can a licensed insurance or real estate agent.
   

2. Choose an insurance company. To choose the right homeowners insurance company, you will want to find an insurer that sells policies with the coverage and other features you need at an affordable price. In addition, look for a company that has a high financial strength rating from AM Best or another rating agency, gets good consumer and professional reviews, and allows you to file a claim or seek assistance 24/7.
   
3. Choose a policy. The right home insurance policy will provide sufficient coverage, have terms that are easy to understand, and may even offer discounts. Consider purchasing a replacement cost policy that will reimburse you for the cost of replacing your property with new items rather than a cash value policy that only pays the depreciated value.

How To Buy Homeowners Insurance

1. Determine how much insurance coverage you need. To estimate the coverage you need, take a home inventory. A home inventory is a detailed account of all of your personal property, both inside and outside your home. Calculate the cost of rebuilding your home after a disaster. Ask a real estate agent for building costs in your area. Determine if you need additional coverage for earthquakes, floods, or a high-risk item, like a swimming pool.

If you have trouble determining how much home insurance you need, the Insurance Information Institute (III) can help walk you through the process, as can a licensed insurance agent or real estate agent.

2. Decide if you want replacement cost coverage or actual cash value coverage. When buying a policy, you’ll likely have the option to select how you’re reimbursed should you make a claim. 

Replacement cost policies issue claim payments without factoring in depreciation. For instance, if your home is damaged in a fire and must be rebuilt, your policy would cover the costs of materials that are similar in quality, even if the price of materials has increased since your home was built

Actual cash value policies issue payments based on the depreciated value of the damaged item. Using the same example as above, your insurer would reimburse you for the cost of materials minus depreciation, which may be less than the actual costs of rebuilding your home.

As a result, most insurance experts recommend a replacement cost policy, even though premiums are somewhat higher.

3. Narrow your search to several home insurance providers. As you review your options, it’s helpful to factor in:

• Coverage types and features
• Policy management options (e.g, online, mobile app, agent)
• Additional types of coverage you may need, such as auto insurance
• Professional and consumer reviews 

Considering these things up front can help you eliminate companies that don’t meet your specific needs.

4. Gather quotes. Once you have chosen a few companies, use the estimate tool on their websites to get an idea of how much it will cost for the coverage you need. It can be helpful to talk to an agent in person or over the phone at this point for additional help. Get quotes from several companies, but be sure to compare policies that offer similar coverages. 

5. Contact the company and begin the application process. As mentioned in the previous step, how you contact the company will vary.

Some home insurance companies may require a home inspection to confirm the condition of your home and ensure you have adequate coverage. If a home inspection is required, the insurance company will send an inspector to your home.

Due to COVID-19, many insurance companies have updated their inspection process to follow safety precautions, including wearing PPE and social distancing. Some inspections will not require you to be present because the inspector only will focus on the exterior of your home, including the roof, and any potential hazards in your yard that could cause damage to your home in the case of a severe storm.

However, some companies are still completing interior inspections, focusing on the condition of your home’s electrical systems, ventilation, fireplace, plumbing, heating, and air conditioning systems. When purchasing home insurance, check the requirements of the insurer you are considering to determine their home inspection practices.

What Does Homeowners Insurance Cover?

Homeowners insurance is designed to safeguard your home and property. Here’s a breakdown of what can be covered by a typical homeowners insurance policy:

• Dwelling. This pays to repair or rebuild your home’s structure plus attached structures if damaged during a covered event. Examples of what it pays for include your attached garage and deck, screened-in porch, and permanently installed materials like countertops and built-in appliances. 
• Personal property. This insurance protects your belongings due to theft, fire, or other covered events. The personal property that applies includes your jewelry, artwork, sports equipment, clothing, furniture, and more. 
• Loss of use. If you’re forced to leave your home due to a covered loss, this coverage steps in to pay for your temporary housing costs and living expenses.
• Medical payments (MedPay). Regardless of fault, this coverage covers medical expenses if someone who doesn’t live on your property is injured. It also applies if you, a family member, or even your pet injures someone when you’re not at home.  
• Other structures. Unattached structures like a detached garage, fence, pool, or shed are protected when you include this option on your policy. 
• Personal liability. This coverage provides financial support and legal protection when you’re responsible for injuries or property damage to others.

What Doesn’t Homeowners Insurance Cover?

While homeowners insurance provides a safety net for your home, it’s important to understand what it doesn’t cover. Standard policies typically don’t pay for damage caused by the following:

• Earthquakes
• Floods
• Sewage Backup
• Pest Infestations
• Wear and Tear
• Nuclear Hazards

Some policies will allow you to protect your home from the hazards with an endorsement, or optional coverage that you add on to a standard policy. This is true for events like sewage backup or earthquakes if you live in an area at risk for tremors.

Bundling Homeowners and Auto Insurance

Many insurance companies will give you a discount if you buy more than one type of policy from them, such as home insurance and auto insurance. This is called insurance bundling or a multi-policy discount. This is worth it to the insurance company because it generates more revenue per customer and helps promote customer loyalty.

Insurance bundling doesn't always save money. For example, an auto insurance company may offer lower rates than companies that sell several types of policies, according to Amy Bach of the consumer advocacy group United Policyholders. Bach says that a company specializing in auto insurance may also offer benefits not available in an insurance bundle from another insurer, such as ticket forgiveness or claims-free discounts

How to Find the Best Homeowners Insurance for These Common Situations

Some situations can make it more difficult to purchase homeowners insurance. We’ve compiled a few tips to help you find the best coverage for your needs, even in a challenging situation.

First-time home buyers

First-time home buyers should familiarize themselves with the different types of home insurance and associated terminology. You can ask your real estate agent, previous homeowner, or friends for referrals of an insurance provider they have experience with. You can also meet with an independent broker to compare quotes and find the best rate.

Dog owners

If you have a dog with a bite history or a breed many insurers ban from coverage, you may need more help finding insurance than the average homeowner. Homeowners in this position should spend their time researching providers who don’t ban specific breeds or have an endorsement for animal liability claims.

Living in a high-risk area

Homes in high-crime zip codes or areas at increased risk for weather-related damage from tornadoes, hurricanes, floods, or earthquakes can be more expensive or have additional coverage needs. Before purchasing a home in a high-risk area, evaluate your coverage options and consider the cost of add-ons for floods or earthquakes, which aren’t typically covered by base insurance policies.

Owning valuable items

If you have substantial assets, such as jewelry, fine art, musical instruments, or other collectibles, you’ll want to confirm your homeowners insurance policy offers replacement value coverage. With this type of coverage, your policy will reimburse you for your items based on how much it would cost to replace or repair them at their current value.

Many insurance policies have coverage limits for personal items, and you may require additional insurance to cover all of your valuables. You can assess your coverage needs by getting an appraisal and purchasing an endorsement for scheduled personal property to expand your coverage.

Living in an older home

Older homes often require more frequent and expensive repairs due to outdated building materials, code violations, and intricate architectural features. You can potentially reduce your premium by upgrading household systems and features, such as plumbing, roofing, or electrical. We also recommend working with an experienced agent who can help you find the best coverage for your situation.

Why You Can Trust Us: 15 Homeowners Insurance Companies Researched

At U.S. News & World Report, we rank the Best Hospitals, Best Colleges, and Best Cars to guide readers through some of life’s most complicated decisions. Our 360 Reviews team draws on this same unbiased approach to rate the products that you use every day. To build our ratings, we researched more than 15 homeowners insurance companies and insurance agencies and analyzed 11 reviews from both professionals and consumers. Our 360 Reviews team does not take samples, gifts, or loans of products or services we review. All sample products provided for review are donated after review. In addition, we maintain a separate business team that has no influence over our methodology or recommendations.

The following describes our 360 approach to researching and analyzing homeowners insurance companies to guide prospective consumers.

1. We researched the companies and products people care most about.

U.S. News analyzed and compared a variety of publicly available data, including internet search data, to determine which homeowners insurance companies and agencies Americans are most interested in. We found 15 homeowners insurance companies and agencies that stand out in terms of volume of searches and research among consumers, as well as across the different rating sources.

We then compared the available homeowners insurance companies and agencies across several criteria, including standard cost, dwelling and structure coverage, identity theft protection, valuable possessions coverage, and available discounts. Research shows that these are the most important criteria for people shopping for a homeowners insurance company.

2. We created objective 360 Overall Ratings based on an analysis of third-party reviews.

U.S. News’ 360 Reviews team applied an unbiased methodology that includes opinions from professional reviews as well as consumer reviews.

Our scoring methodology is based on a composite analysis of the ratings and reviews published by credible third-party professional and consumer review sources. The ratings are not based on personal opinions or experiences of U.S. News. To calculate the ratings:

(a) We compiled two types of third-party ratings and reviews:

• Professional Ratings and Reviews. Many independent homeowners insurance evaluating sources have published their assessments of homeowners insurance companies and agencies and their policies online. We consider several of these third-party reviews to be reputable and well-researched. However, professional reviewers often make recommendations that contradict one another. Rather than relying on a single source, U.S. News believes consumers benefit most when these opinions and recommendations are considered and analyzed collectively with an objective, consensus-based methodology.
• Consumer Ratings and Reviews. U.S. News also reviewed published consumer ratings and reviews of homeowners insurance providers. Sources with a sufficient number of quality consumer ratings and reviews were included in our scoring model.

Please note that not all professional and consumer rating sources met our criteria for objectivity. Therefore, some sources were excluded from our model.

(b) We standardized the inputs to create a common scale.

The third-party review source data were collected in a variety of forms, including ratings, recommendations, and accolades. Before including each third-party data point into our scoring equation, we had to standardize it so that it could be compared accurately with data points from other review sources. We used the scoring methodology described below to convert these systems to a comparable scale.

The 360 scoring process first converted each third-party rating into a common 0 to 5 scale. To balance the distribution of scores within each source’s scale, we used a standard deviation (or Z-Score) calculation to determine how each company and agency’s score compared to the source’s mean score. We then used the Z-Score to create a standardized U.S. News score using the method outlined below:

• Calculating the Z-Score: The Z-Score represents a data point's relation to the mean measurement of the data set. The Z-Score is negative when the data point is below the mean and positive when it's above the mean; a Z-Score of 0 means it's equal to the mean. To determine the Z-Score for each third-party rating of a company or agency, we calculated the mean of the ratings across all companies evaluated by that third-party source. We then subtracted the mean from the company’s rating and divided it by the standard deviation to produce the Z-Score.
• Calculating the T-Score: We used a T-Score calculation to convert the Z-Score to a 0-100 scale by multiplying the Z-Score by 10. To ensure that the mean was equal across all data points, we added our desired scoring mean (between 0 and 10) to the T-Score to create an adjusted T-Score.
• Calculating the common-scale rating: We divided the adjusted T-Score, which is on a 100-point scale, by 20 to convert the third-party rating to a common 0-5 point system.

(c) We calculated the 360 Overall Score based on a weighted-average model.

We assigned “source weights” to each source used in the consensus scoring model based on our assessment of how much the source is trusted and recognized by consumers and how much its published review process indicates that it is both comprehensive and editorially independent. The source weights are assigned on a 1-5 scale. Any source with an assigned weight less than two was excluded from the consensus scoring model.

Finally, we combined the converted third-party data points using a weighted average formula based on source weight. This formula calculated the consensus score for each product, which we call the 360 Overall Rating.