On all those reality TV shows that follow the ups and downs of first-time homebuyers, most of the financial discussion revolves around the price of the house itself. Occasionally, they’ll throw property taxes into the calculation. The words "homeowners insurance" don’t seem to come up.
But homebuyers need to factor it into their budgets. The National Association of Insurance Commissioners said the average homeowners insurance policy, covering the building, personal property and liability, cost $822 in 2007.
However, some states can be significantly pricier: Florida and New York, for example, each had an average cost of more than $1,000 that year. Then, there are the potential add-ons and extra coverage for flooding, wind damage or earthquakes.
On the flip side, the diligent and savvy consumer can score some discounts, but he or she might have to ask for them specifically.
Five things for homebuyers to keep in mind about homeowners insurance:
1. How much insurance should you have?
"Homeowners insurance pays what it’s going to cost to rebuild a house and replace your personal possessions in it," said Jeanne Salvatore, a spokesman for the Insurance Information Institute, a trade group.
The institute suggests homebuyers can ballpark the cost of basic insurance by multiplying the square footage of the home by local building costs per square foot. The group says such local figures may be available through real estate agents, local homebuilders’ associations or insurance agents.
2. The condition and location of the house could make a difference in the annual premium, Salvatore said.
For instance, a home closer to the local fire department and to professional, full-time firefighters usually costs less to insure. In addition, poorly maintained or unsafe plumbing or electrical systems could add to the annual premium.
"Some companies will send out someone to look at the house (and its mechanical systems), others will not," Salvatore said.
"They might ask follow-up questions. The reality is that if it’s known that you have an older house with older electrical or plumbing systems, this is something that could cause losses, and you would be charged more (for coverage)," she said.
3. Then there are special circumstances. Depending on the region, some homeowners will need to acquire coverage for flooding, wind damage, earthquakes or other natural hazards, Salvatore said.
Flood insurance isn’t covered under standard policies, though it’s available from the National Flood Insurance Program, which is serviced by private carriers and some specialty insurers.
Wind damage may be covered by private insurance or through state-run programs. Earthquake coverage requires an endorsement to a homeowners insurance policy or separate insurance. Some homes in Hawaii might need tsunami insurance.
4. There are ways to whittle the annual tab down, such as raising the deductible amount. If you have a good credit history, some insurers may offer you a discount.
Other potential discounts: multi-policy, for having homeowners, car or other policies with the company; having smoke detectors, fire sprinklers or fire extinguishers; being over 55 and/or a longtime policy holder; security alarms that connect to an outside service; wind-resistant-shutters, and others.
5. Consumers can check a home’s insurance "rap sheet" to see whether certain undisclosed problems may have befallen the place in years past by asking the seller to provide a loss-history report.
The loss-history report is a record from the insurance industry that shows what, if any, claims have been made for the property in the past five years. The reports might reveal claims related to flooding or electrical fires, for example.
CLUE (Comprehensive Loss Underwriting Exchange) reports are available for homeowners through ChoicePoint (ChoiceTrust.com); ISO, which compiles insurance-industry data and issues A-PLUS reports (ISO.com). To protect homeowner privacy, only homeowners and others with certain permissible business purposes can obtain the reports, so interested homebuyers should ask the seller to provide them.