Summary: This article gives a basic overview of homeowners insurance and is intended for first-time home buyers who are new to the subject.

Are you planning to buy your first home in the near future? If so, you should reading up on homeowners insurance as well. Your mortgage lender will require you to have a home insurance policy prior to closing day. In fact, you’ll probably have to bring the policy with you when you close on the home.

This is one of the many things a first-time home buyer should know about homeowners insurance. Here are ten more things you should know…

What to Know About Homeowners Insurance

Getting a homeowners insurance policy is harder today than it was a few years ago. Our economic recession has had a lot to do with this. Everything is harder to get these days — mortgage loans, car loans, insurance coverage, etc. So you may have to shop around to get the kind of coverage you want, and you should definitely get multiple quotes to compare the cost from one provider to the next.

A couple of definitions you should know: The homeowners insurance premium is the amount you pay for coverage. The deductible is what you will pay in the event of a claim, before the insurance company will pay the rest.

Premiums and deductibles generally have an inverse relationship. That is, you can lower your premium by raising your deductible. This is a strategy recommended by many in the finance industry. The Insurance Information Institute says that “If you can afford to raise your deductible to $1,000, you may save as much as 25 percent [on your premiums].”

In the U.S., the average cost of a homeowners insurance policy is around $800 per year. This is for the premium. The deductible varies from one policy to another and can be raised or lowered by the homeowner.

Most homeowners insurance policies do not cover floods. So if you live in an area that’s prone to flooding, you should get a separate policy (or an add-on) for flood insurance. Visit Floodsmart.gov to learn more about this kind of coverage.

When choosing a policy, you will probably have to choose between replacement cost and actual cash value. These terms relate to the contents of your home, but they are two different things. Replacement cost coverage gives you more protection than cash value, because it covers the cost of replacing items even if they cost more than when you bought them (appreciation). Cash value only covers items up to the amount you paid.

You can get quotes for a homeowners insurance policy online, which will save you plenty of time and energy. This is also a great way to compare policies of multiple insurance companies at once.

Learn the Basics and Shop Wisely

These are the basics of homeowners insurance policies. There is certainly more to know about this subject, but the information presented above will give you a good foundation of knowledge. To continue your research, you might want to visit one (or more) of the following websites:

• www.insureme.com
• www.iii.org
• www.homebuyinginstitute.com
• www.farmers.com

I hope this article helps you understand the basics of home insurance, and I wish you well in your home buying process. Good luck!

If you plan to buy a home in the near future, you should be researching the various components of homeowners insurance. Why? Because you’ll need to have a policy in place by the time you close on the house. In fact, your lender will require you to provide proof of insurance on closing day.

This article offers a solid introduction to the world of homeowners insurance. We will cover several key concepts you need to understand before you start shopping for insurance.

Here are five important things you need to know:

1. Understanding Premiums and Deductibles

Here are two key definitions you should know, before we go any further: The home insurance premium is the amount you pay for the policy. The deductible is what you’ll have to pay if you ever make a claim against the policy, before the insurance company will pay the rest. If you can keep these two definitions in mind, everything else will make more sense. Let’s move on to discuss the relationship between these two things.

2. Raising the Deductible Can Lower the Premium

Premiums and deductibles generally have an inverse relationship. This means you can lower your premium (the amount you pay every year) by raising your deductible. A lot of financial experts recommend this very strategy, as way of lowing the overall cost of insurance.

According to the Insurance Information Institute: “If you can afford to raise your deductible to $1,000 [as compared to the standard $500 deductible], you may save as much as 25 percent.”

3. There are Other Ways to Control Costs

So how much does a homeowners insurance policy cost, anyway? In the United States, the average policy costs about $800 per year. This is just for the premium, which is the amount you pay year after year. Deductibles vary from one policy to another, and they can be raised or lowered by the insured party.

You can lower the cost of coverage by increasing your deductible amount (mentioned earlier), by shopping around for competing offers, and by getting a multi-policy discount from your current insurance company.

4. Replacement Cost is Better Than Cash Value

When you choose a home insurance policy, you will probably be asked to choose between replacement cost and actual cash value (as they pertain to your belongings). Replacement cost offers more protection, because it will replace the items you have lost with comparable items — even if they are worth more today than when you bought them.

Take a big-screen television, for example. If you lose a model that’s ten years old, it’s possible that a newer but comparable model will cost hundreds more than what you paid for your older model. Replacement-cost coverage will pay the higher amount. Cash-value coverage will only give you what you paid, ten years ago.

5. Flood Protection is Extra

Did you know that most homeowners policies do NOT offer flood protection? It’s true. So if you live in an area where there’s a reasonable risk of flooding, you should get a separate policy or a “rider” for flood coverage. You can learn more from the federal government’s website at FloodSmart.gov.

These are the most important concepts to keep in mind when shopping for homeowners insurance. Obviously, there is more to the picture than what is discussed in this article. But if you keep these concepts in mind, you’ll have a much easier time choosing a policy.