• How to Compare Home Insurance Quotes Online

    Brandon Cornett

    By Brandon Cornett
    © 2014 All rights reserved

    In this lesson, you'll learn how to gather and compare home insurance quotes online, in order to choose the best policy. Hint: It's easier than you think.

    Did you know you need a homeowners insurance policy in place before you can finalize the purchase of a home? It's true. Your mortgage lender will require it. But that's only one reason to buy a policy. The most important reason for home insurance (from your perspective) is to protect what is probably your biggest investment.

    So we can both agree that it makes sense to have a homeowners policy. No one can argue that. The next question you probably have is how to shop for it. How do you compare one home insurance policy to another? How much coverage do you need? What other features are important? Is it possible to get quotes online, and if so which websites should you use?

    You'll find answers to all of these questions (and more) below.

    What Does Home Insurance Cover?

    Let's start by talking about the type of coverage you get from a standard homeowners policy.

    Terminology note: In this article, I'll be using the terms "home insurance" and "homeowners insurance" interchangeably. They mean the same thing. They both refer to an insurance policy that covers your house and the contents inside it (personal property). In some states, the term "hazard insurance" is used to describe these policies.

    You can't compare home insurance quotes without knowing what the policy covers -- or what it should cover. So let's talk about the common types of coverage.

    There are three basic components of a policy. In order to compare insurance quotes, you need to understand the three areas of coverage. The typical policy will cover the following:

    1. The actual home (dwelling coverage)
    2. The contents inside it (personal property coverage)
    3. Lawsuit protection (liability coverage)

    It's worth repeating. You need to have a firm grasp on these three items before you start shopping for a homeowners policy. Otherwise, you won't know if you're getting enough coverage. So let's talk about each one of these items in turn:

    Part 1 - Protecting the Home Itself

    First and foremost, the policy needs to cover the home itself (the structure of the building). In most cases, a representative from the insurance company will come out to see the property firsthand. They will insure it for the current value at the time the policy is generated. You will usually find these details in the "dwelling coverage" section of your policy. When you gather home insurance quotes online, you need to know exactly how much coverage is given to the structure. This brings us to another important concept -- replacement cost.

    The cost of construction rises over time. So you should ask the insurer if the policy they are offering includes a guaranteed replacement cost provision. Basically, this states that they will cover you for the full cost of replacing the home, even if the future cost of construction is more than the policy coverage. Replacement cost is one of the key items you'll have to compare when gathering quotes from different providers. I guarantee you will see this phrase again.

    Many companies limit the amount of dwelling coverage to 20 percent above the amount for which the property is insured. For example, if you've insured the home for $200,000, and you have a replacement cost provision up to the 120 percent of the dwelling coverage amount, the company would cover the cost up to $240,000.

    Twenty percent above the baseline is sort of an industry standard. So keep it in mind as you compare insurance quotes online. If a company only offers coverage that is ten percent above the baseline, you might want to shop around for a better policy. They are offering you less than the standard amount of protection.

    Part 2 - Protecting Your Personal Property

    In addition to protecting the house itself, you'll want to protect the items inside the house. This includes your furniture, clothing, electronics, and all of your other belongings. Add these items in your head, just to get a rough estimate of the cost. It's probably a significant number, right? So you want to make sure your homeowners policy gives you enough coverage for these items.

    Compare one home insurance policy to another, and you'll see some clear differences in the personal property department. There's a lot of variance in this area. At the same time, some industry standards have evolved over the years. Some insurance providers will automatically set the personal property coverage amount to a certain percentage of the dwelling coverage amount. Remember, the dwelling component of the policy protects the structure itself.

    As a "default" setting, some companies will cover your personal property up to 50 or 75 percent of the dwelling coverage. For example, if the dwelling were covered up to $200,000, they would reimburse you for personal property losses up to $100,000 or $150,000 (using the 50 - 75 percent rule).

    When you get home insurance quotes online, you should also keep an eye out for a distinction between "actual cash value" and "full replacement cost." These terms apply to the level of personal property coverage in your policy. Full replacement is exactly what it sounds like -- the company will reimburse you for the cost of your belongings for what they're worth at the time of replacement (even if the price has gone up since you first purchased the items).

    If your belongings are insured for the actual cash value, the provider will only reimburse you for the depreciated value. They'll use the amount you paid for the item at the time of purchase (which would probably be less than a comparable item at current market value). In other words, it gives you less coverage for your personal property.

    Example Scenario: You need to fully grasp this concept before you can compare home insurance quotes. And I know it's confusing. So let's look at an example of these policy differences in action.

    Let's say you paid $500 for a 42-inch flat-screen TV eight years ago. It gets smashed when a tree falls on your house. If you have full replacement coverage for your personal property, your insurer should pay for a new 42-inch flat-screen TV (even if it costs $300 more than the comparable model you purchased eight years ago). If the comparable model costs $725, you'd still be covered. But if you elected to have the items insured at cash value, you would only receive the depreciated value of the TV you bought eight years ago -- $500.

    As you might imagine, it costs more to have full replacement coverage. Typically, you'll have to pay 10 percent more in annual premiums to receive the higher level of protection. So it's a tradeoff. Some people want the maximum amount of protection, even if it increases their annual premium. Some people want to minimize their premiums at the expense of their coverage. It's a personal choice you'll have to make when you compare home insurance policies. My goal with this lesson is to help you make an informed choice when comparing quotes.

    Part 3 - Protecting Yourself from Lawsuits

    Most homeowners policies come with some level of liability coverage as well. This protects you from costs associated with accidents or injuries that occur on your property.

    As a homeowner, you have a certain liability associated with your home (whether you realize it or not). For example, if somebody gets hurt on your property, there is a chance you could be sued for damages. Liability coverage protects you from such lawsuits. It doesn't prevent the lawsuits from happening. It just reimburses you for any legal fees or settlements you might incur, as a result of such legal actions. It's one more component to consider when you get home insurance quotes online.

    Most policies come with a minimum amount of liability coverage, which usually starts at $100,000. But if your assets are worth a lot more than that, it's probably a good idea to increase the amount of liability coverage. While there is only a remote chance you will be sued, the possibility does exist. And the results can be financially severe. As you compare home insurance offers, you must also compare the amount of liability protection that is built into the policy. It's an important part of your overall coverage.

    Here's the key concept to keep in mind regarding liability coverage. You can usually upgrade this type of coverage with very minimal cost to you. For example, it's possible to increase liability coverage from $100,000 to $300,000 for as little as $20 difference in the policy cost. It's something worth considering.

    How to Compare Quotes Online

    Now that you understand the different parts of a policy, you're in a better position to compare home insurance quotes. You can even do this online, which is a great way to save time and energy. There are two ways to go about it:

    • You can get online quotes directly through an insurance company's website. This has its pros and cons. You're talking directly to the provider (and not a middleman), which is good. But you're also limited to a single quote from that one company. So if you want to compare home insurance policies, you'll have to repeat the process several times.
    • You can also get quotes through an online insurance "portal" or network. This is where you fill out a single form on a single website to get multiple offers from providers. You can see the benefit to this approach -- it's an easy way to comparison shop.

    I hope you've found this lesson useful. If you would like to learn more about the home-buying process, use the search box at the top of this page. It gives you instant access to a research library of more than 500 articles.