7 Common Mistakes First-Time Homebuyers Make with Insurance
First-time homebuyers have the pleasure of being giddy with excitement over their first home, they’ve earned it! It is an exciting milestone as purchasing your first home is the culmination of countless hours searching for the perfect place, saving for what feels like an eternity and finally signing on the dotted line to declare that the home is now yours. However, a very common misconception is that it all ends there with your name on that final piece of paper.
It is crucial, but often overlooked, to consider home insurance for a new home to maintain a secure asset that is protected from whatever events life throws your way. Now comes the fun (or not so fun) realization that insurance can be difficult to understand for a first home buyer in their early 20s who hasn’t the slightest idea of where to begin.
Here, we will explore seven common mistakes that many first-time homeowners make when it comes to insurance, and how you can avoid them. By learning from others’ slip-ups, you’ll be able to protect your new home (and your peace of mind) from day one.
1. Not Starting with a Realistic Budget
The Mistake: Of course, moving into your first dream home that you worked so hard for will have you bubbling with joy and excitement. But, it is important to always consider insurance within your home purchasing budget. Most people see their mortgage payment, property taxes and home maintenance as the end of their bills and payments, they overlook how insurance fees fit into the new picture perfect home that they have framed.
The Fix: While first homebuyers should be joyful that they have purchased their first property, they should also consider insurance costs from the beginning of their buying journey. An appropriate strategy here is to include insurance in monthly and annual housing budgets.
To get an appropriate quote or estimate, and compare coverage levels, talk to different insurance providers and set an accurate, manageable budget to avoid nasty surprises down the road. You will be surprised at how much this small step can save you over the course of your first year in a home.
2. Skimming the Fine Print of a Policy
The Mistake: The eager nature of many first-time homebuyers, to finalize their home purchase, results in missing the finer details in an insurance policy. Not reading between the lines with a fine tooth comb can lead to misunderstanding coverage options when it matters most—like in the middle of a claim.
The Fix: Taking your time is key here. Reviewing each section of your policy and asking for clarification from an insurance agent if you have any questions is important to ensure all of your insurance boxes have been ticked. Remember that knowledge is power, and knowing exactly what your home insurance policy covers will help you navigate the unexpected with confidence.
3. Underinsuring or Overinsuring the Home
The Mistake: Knowing how much or how little coverage a home will need can be tricky and not knowing is more common than you might think when looking into home insurance. By underinsuring, a homebuyer could leave a gap for significant out-of-pocket expenses if disaster strikes, while overinsuring means paying for coverage that may never be used.
The Fix: Start from and determine the home’s replacement cost (the amount needed to rebuild your home from the ground up) rather than its market value. An accurate replacement cost estimate helps ensure you’re not under- or over-protected. Many insurance providers and online tools can help you figure this out, so take advantage of them.
4. Forgetting Specialized Coverage
The Mistake: Not all perilous and specialized events are covered by standard home insurance policies. New homeowners sometimes assume that hazards like floods or earthquakes are covered, only to discover the truth after a damaging event, they are add ons to their existing policy.
The Fix: Assessing and researching risks in your neighborhood and area is of the utmost importance to make sure that you are covered if events like this do occur. Consider flooding, tornadoes, earthquakes or flash-fires first and look into policies that have additional coverage offerings.
Standard policies often exclude certain natural disasters, meaning you might need add-ons or separate policies to be fully covered. While it might mean a slightly higher premium, you’ll sleep better knowing you’re truly prepared for the worst.
5. Delaying Purchasing Insurance Coverage Until the Last Minute
The Mistake: The first thought is always the home and everything after that can come later. However, procrastinating on getting home insurance is a pitfall for many first-time buyers. They might wait until just before closing or, worse yet, after moving in, to start looking for a policy where issues will surely arise quickly and without a cheap resolution.
The Fix: Begin your insurance search as soon as your offer is accepted. By doing this, you give yourself ample time to compare providers, do appropriate research, negotiate, and fully understand the coverage you’ll receive. Additionally, lenders will at times require proof of insurance before they finalize a mortgage, so you’ll save yourself unnecessary stress by getting this sorted out early.
6. Not Taking Advantage of Discounts and Bundling Options
The Mistake: With tunnel vision and in the rush of buying a new home, first-time buyers often miss out on discounts or policy combinations, like pairing home and auto insurance. Usually, first-time homebuyers are not aware or have not even considered available offers.
The Fix: Look into multiple providers, compare prices and ask about any discounts available. If you already have other types of insurance, car insurance for example, look into bundling it with your home insurance. If you’ve taken steps to make your home safer (like installing smoke alarms and security systems), you can also let your insurance provider know as these small details can lead to significant savings in your premiums.
7. Never Reviewing or Updating the Policy
The Mistake: Your home may already have insurance. Great! But life changes and your needs and requirements for your home may differ to that of the previous owner or from your previous first 6-months in the home. Just as life changes, your insurance policy should follow suit as the existing policy may not fully reflect your home’s current condition or value.
The Fix: Review your policy often, especially if there have been major updates to your home like renovations or people living with you. Regular check-ins ensure that your coverage remains aligned with your property’s true worth and will help you stay on top of any new discounts or coverage options that might become available.
Why You Should Always Research Before Purchasing Insurance
Your home is likely the biggest investment you’ve ever made, and protecting it should be at the top of your priority list. To avoid common mistakes like these, be proactive and you will be in a great position to safeguard your property and your finances for years to come.
If you’re looking for more detailed information on how to protect your new home, check out these insurance tips for first-time homebuyers to ensure you’re making the smartest possible decisions. Getting the right coverage isn’t just about peace of mind; it’s also about creating a secure foundation for your future as a homeowner.
Remember: a little due diligence goes a long way. When in doubt, lean on professionals and seek advice—whether it’s from your insurance agent, financial advisor, or mortgage broker. Here’s to a smooth and secure journey into homeownership and insuring your home in the best way possible.
