A homebuyer's guide to homeowners insurance
After you find a home to buy and sign a contract with the seller, an important next step is lining up homeowners insurance. In fact, not doing so could delay your closing—especially if you have a mortgage.
Key takeaways:
Most lenders and HOAs require homeowners to have insurance
Start looking for insurance after the contract is accepted
Find a few good insurance agents
Understand your coverage options
Shop around
Skip to our homeowners insurance FAQs
While Illinois state law does not require homeowners to have insurance, mortgage lenders and condominium associations often do. It is a relatively inexpensive way to protect your investment in your home and belongings.
Allow extra time for coverage to take effect
Unlike auto or renter insurance, securing homeowners insurance takes a few weeks to apply and take effect. It is best to get started just after your real estate contract has been accepted—and well before you move in.
Talk to a few agents
Choosing a competent and experienced insurance agent is a good start—and we suggest you speak to three or more. Ask your friends and family for recommendations or ask us.
Understand your coverage options
Generally, homeowners insurance policies cover destruction and damage to a residence’s interior and exterior, the loss or theft of possessions, and personal liability for harm to others.
Here are the four basic levels of coverage, from least to most:
- Cash value: the amount you paid for something
- Replacement cost: the amount to replace something
- Extended replacement cost: the amount you paid something plus 10% to 50% of the cost to repair or replace
- Guaranteed cost replacement: the amount to repair or replace, even if the cost exceeds your policy limit
Shop around
We suggest you compare three or more insurers. Make sure the coverage type and limits are of equal footing (aka, apples to apples) for each quote. A lower quote might provide you with less protection.
Finally, check out these FAQs about homeowners insurance:
When is the best time to look for homeowners insurance?
Why start looking for homeowners insurance so early in the process?
What happens if I wait until the last minute to get homeowners insurance?
What kind of information will the insurance company need?
What type of insurance do mortgage lenders require for a single-family home?
What type of homeowners insurance do lenders require for a condominium?
How can I determine if I need additional coverage for my belongings?
Which events are not covered by basic homeowners insurance?
Have any money-saving tips for buying homeowners insurance?
Can I transfer my existing homeowners policy to a new home?
In Illinois, do I need an in-state insurance broker/agent?
What if I don’t move into my home right away?
When is the best time to look for homeowners insurance?
As soon as your contract is signed. It is better to have this in place earlier than later as you want to be sure 1) coverage is available for the home you are buying and 2) you can afford the cost. Some banks use the policy information to finalize the mortgage. Further, many contracts require the buyer to confirm the property’s insurability shortly after signing the contract.
Go back to FAQs
Why start looking for homeowners insurance so early in the process?
As mentioned above, you want to ensure that the property is insurable at a price you can afford. Additionally, insurance underwriters need time to review the information. If they see anything that needs repair or is out of code, they might not approve the policy—or they may ask for repairs or estimates for repairs, which also take time to complete.
What happens if I wait until the last minute to get homeowners insurance?
Procrastination could delay the closing, as many mortgage lenders will not close on an uninsured property.
What kind of information will the insurance company need?
Essentially, insurance underwriters need to determine the costs of replacing or rebuilding the home (not just the cost to buy it). To determine that amount, buyers generally need to provide:
- Amount of the final offer
- Contact info for lender or bank
- Contact info for your real estate attorney
- Copy of the mortgagee clause
- Copy of the appraisal
- Photos of the home
You might also consider the replacement cost of your belongings (more on that below).
Go back to FAQs
What type of insurance do mortgage lenders require for a single-family home?
Lenders require a basic HO3 policy or an HO5 policy, which offers more coverage than an HO3.
Single-family HO3s and HO5s generally provide coverage for:
- Dwelling
- Dwelling extension, like a garage
- Contents/belongings
- Additional living expenses in case of an event
- Various levels of liability for accidents
What type of homeowners insurance do lenders require for a condominium?
For condominiums, lenders require an HO6 policy.
Why? Because homeowners insurance works differently for condominiums. The association should have a master policy, which will protect the exterior of the building. It may also cover the building and each unit's walls, or only the building outside each unit's walls. Be sure to check the bylaws as each association is different.
Condominium HO6s generally provide coverage for:
- Contents/belongings
- Additional living expenses in case of an event
- Various levels of liability for accidents
How can I determine if I need additional coverage for my belongings?
Take an inventory of the home and your own belongings to review with your agent. You may want extra coverage if the home has high-end appliances, if you own expensive items, or if the lender says you need more coverage.
Which events are not covered by basic homeowners insurance?
Most policies do not cover extraordinary events, like floods (flood insurance would be purchased via FEMA), earthquakes, or sewer back-ups (a common Chicago-area occurrence). If the home has a basement, we suggest you ask your agent about adding additional water backup insurance.
Did you say earthquakes? Are earthquakes possible in Illinois?
Yes. There is a seismic zone in Southern Illinois called the New Madrid Fault line. But generally, the further you are from the fault line, the cheaper the coverage cost of earthquake insurance.
Have any money-saving tips for buying homeowners insurance?
Ask your agent, but a few ways to save may include:
- Bundling homeowners with auto insurance
- Getting a security system
- Choosing a high deductible
- Paying out-of-pocket for small repairs that are below the deductible amount
Can I transfer my existing homeowners policy to a new home?
No, the policy must be rewritten for the new home.
In Illinois, do I need an in-state insurance broker/agent?
Yes. But if the home is close to a state line, you can find an agent that is licensed in both states (like Indiana/Illinois or Wisconsin/Illinois), which could be helpful if the buyer is moving across the border.
What if I don’t move into my home right away?
It might be harder to insure a property if it is not occupied. Tell your agent if the home will be vacant for a few months after closing so they can offer suggestions.
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Thanks for reading our guide. We hope it informs your real estate purchase.
Contact us if our firm can help you with your closing.