What to Look For in a Homeowners Insurance Policy

Shopping for homeowners insurance usually feels like picking between four indistinguishable quotes with slightly different numbers. The cheapest quote wins, you move on, and you don't think about the policy again until something breaks. That's a mistake. The differences between policies are real and they matter, a lot, if you ever have to file a claim.

Here's what actually matters when you're comparing homeowners insurance policies, in roughly the order you should pay attention to them.

If You Are Financing, Insurance Is Not Optional

Why does the lender care so much about your insurance policy? Because until your loan is paid off, the lender owns most of the house, and they are not in the business of letting their collateral burn down uninsured. Every mortgage in the United States requires you to carry homeowners insurance for the life of the loan. The closing disclosure will list the first year's premium as a line item, and most lenders require proof of bound coverage before they fund the loan. If you cannot produce a binder, you do not close.

It does not stop at closing. Your servicer will monitor your policy every renewal cycle. If your policy lapses, gets cancelled, or you let it expire while shopping for a better rate, the servicer will force-place coverage on your behalf. Force-placed insurance is notoriously expensive, often two to five times the cost of a standard policy, and it usually only protects the lender's interest, not your personal property or liability. The premium gets added to your escrow and your monthly mortgage payment goes up accordingly. Do not let this happen.