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Things You Need to Know When Buying Home Insurance

There is no one-size-fits-all home insurance policy. Insurance policy costs depend on the home’s location, age, size of the deductible, and coverage level. This is a list of some important things you should consider.

1. 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.

Homes located near highly rated, permanently staffed fire departments (and even fire hydrants), for example, may cost less to insure.

Proximity to the coastline is also weighed heavily.

In addition to higher policy cost, coastal home insurance policies could include a separate hurricane or windstorm deductible based on the fees to rebuild a home.

2. Flood Insurance

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. However, 25% to 30% of all paid losses for flooding are in areas not officially designated as special flood hazard zones.”

3. Earthquake Insurance

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.

4. Liability Insurance

Does your new home have a fabulous swimming pool and hot tub? If so, then 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. Claim History

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 in 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.

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 will let you see it, but there’s no harm in asking. If you already own the home, you can get a free report from LexisNexis.

6. Insurance Deductible

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.

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. 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.