As any first-time homebuyer can attest, there are plenty of costs in owning a home. Home insurance is at the top of the list, with additional riders for things like flooding and earthquakes, depending on where you live.
Having insurance to cover your most expensive asset includes more than protecting it from fire, theft and other types of damage. There's also title insurance, home warranties, and making sure you have enough coverage to rebuild if it comes to that.
Here are some basics to remember when shopping for insurance for your home:
Dwelling coverage
Base the amount of dwelling coverage on the cost to rebuild the home, and not the market value, says Eric Stauffer, who runs an insurance review website. The cost of the land is irrelevant, Stauffer says, and people can easily over-insure themselves if they're not careful.
An insurance agent will use a "replacement cost calculator" to determine the cost per square foot to rebuild the home. It should use "actual cash value" at today's market value to determine the rebuilding costs, and not depreciate the home's value, says Sierra Knight Magee, owner of KMI Solutions, an independent insurance agency in Richmond, VA.
If you own a new home, you may get an insurance premium discount because things aren't as likely to fall apart, Knight Magee says.
"A lot of companies give very good rates for new construction," she says.
A high deductible from $2,000 to $5,000 can lower the cost of dwelling coverage, says Scott Cameron, a State Farm Insurance agent in Oscala, Fla. Home liability coverage should be more than your net worth and more than 1.5 times your income, Cameron says.
Floods and other exclusions
Floods and earthquakes are excluded from lists of "all perils," which are basically natural disasters that can damage or destroy a home. War is also excluded, as are water backups.
Make sure that you have an "all risk" policy that includes unlimited backup of sewers, drains and sump pumps, says Patti Clement of HUB International, an insurance company. If there's a power failure that causes pumps to fail and a basement floods, for example, such a policy would cover the loss, Clement says.
Flood and earthquake insurance costs extra, and your mortgage company may require you to have flood insurance from the federal government if you live in a flood zone.
Personal property
Homeowner's insurance should cover personal belongings found inside or outside the home. Just as with dwelling coverage, the replacement costs should be for actual cash value and based on today's prices. If your computer burns in a fire, you don't want to get the depreciated value for it, but enough money to buy a similar, new computer, for example.
"People often underestimate the cost of replacing all their possessions and tend to focus on the big things like furniture and electronics," Stauffer says. "Replacing an entire family's wardrobe can be very expensive."
"It's also a good idea to take a video camera or smartphone and walk around recording everything while opening doors, closets and drawers," he says. "It gives a better understanding of what items are owned, and serves as proof should something happen to them later."
He recommends carrying at least $100,000 in personal property coverage, though a homeowner could need more after doing an inventory. If you own guns, fine art, antiques or other valuable items, you may need to be an insurance rider to cover them, Knight Magee says.
Graeme Gibson, a chiropractor in Seattle, wisely bought a "computer" rider for $7 a month after buying a new computer and understanding that the warranty didn't cover physical breakage.
Gibson and his wife had a small child at the time, and figured they'd need the coverage at some point. The boy pulled the computer down onto the floor one day, causing the screen to break. Their insurance carrier sent them a check for a new computer after they filed a claim.
Liability insurance
If your dog bites someone or a neighbor injures themselves on your property, liability insurance will protect you from a lawsuit. Knight Magee recommends at least $300,000 in liability coverage, which should match or exceed the home's value.
Umbrella policy
If you have a lot of assets and want to go beyond the maximum payouts on your home and auto policies, an umbrella policy is a good policy to get, says Brian Kim of Group BK, a real estate brokerage. It's a part of personal liability insurance to protect you from a lawsuit, and is important for high net worth individuals to have.
Mold
Most standard homeowners' policies have limitations under mold, Clement says. New York state has a limit of $20,000 in coverage, and Connecticut and New Jersey top it at $10,000 she says. The amounts can be increased with an additional premium. Where there's a water claim, mold will likely happen pretty quickly, she says.
Title insurance
Lenders require title insurance to protect them in case someone makes a claim on the home's title and says they're the owner. It also makes sure there are no liens on the property, ensures the seller owns the house, and makes sure a fence isn't going through your property, for example.
While a new homeowner must buy title insurance if they're getting a bank loan, they can still shop around for the best deal, says Daniel Price, president and CEO of OneTitle National Guaranty Co., which sells title insurance in New York state.
It's a one-time premium when buying a house, and buyers don't have to go with the company recommended by their bank or the same company doing the title search on their home, Price says.
"Unlike other type of insurance, title insurance covers you for things that have already happened," he says.
Home warranty
While not exactly insurance, a home warranty covers appliances and other home systems that break during the warranty period. It's common for sellers to buy home warranties for buyers, putting them at ease in case something breaks within a year. An air conditioner, water heater or clothes washer can be expensive to buy new, and a warranty can be worth the cost if you're unsure how long an appliance will last.
Update coverage
Whatever type of home insurance you get, be sure to update it if you do any renovations or add personal items that need to be covered. Many new homeowners are uneducated on the insurance they need, and an annual talk with their agent can help.
"I think they hold a lot of stock in whoever their insurance company is," Knight Magee says.
Don't take no as the first answer
What an insurance representative says on the phone and what an insurance adjustor says in person can differ, as Kathryn Williams, the wife of Gibson, learned when they bought their first home. A sewage backup in the basement led to a call to the insurance company, and a representative said everything would be covered, says Williams, an adviser for Dental Departures.
The insurance rep who came out to their home, however, said it wasn't covered because they didn't have a separate water and sewage damage policy.
After speaking with his manager, a second person was sent out and had a differing opinion - the couple was responsible for the deductible and the sewage pipe repair, and the insurance company was responsible for the damage caused by the backup, getting to the pipe that needed the repair, and fixing any damage caused getting to the pipe.
"This was a far different story than we were originally told, and had we not escalated after hearing the first opinion, we would have been stuck with a massive bill we couldn't have afforded," Williams says.
"Don't take no as the first answer, and have them explain the entire policy," she says.