How Do I Shop for Homeowners Insurance as a First-Time Buyer in California?

How do you shop for homeowners insurance as a first-time buyer in California, including here in Orange County? Start early, compare the same coverage across several insurers, and use the state's free tools.

I'm Jeanette Nelson, a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas. Insurance is one of the first things to line up in escrow.

This is general information, not insurance or legal advice. A licensed insurance agent or broker can answer questions about your specific home.

The Consumer Financial Protection Bureau (CFPB) explains that when you have a mortgage, your lender wants to make sure the property is protected by insurance, so lenders generally require proof of coverage.

You can shop for the policy yourself. If your loan has an escrow, or impound, account, the lender collects part of each monthly payment and pays your insurance bill from that account when it is due.

Lenders typically want your first year's premium paid at or before closing, so it shows up in your cash to close. Our guide to first-time buyer closing costs walks through those numbers, and our escrow guide explains the timeline.

The California Department of Insurance (CDI) offers free tools on its website:

• Homeowners Premium Comparison Tool. Compare sample premiums across insurers.
• Homeowners Coverage Comparison Tool. Compare what different policies include.
• Residential Insurance Company Contact List. Toll-free numbers for over 50 licensed insurers, per the CDI.

The CDI's residential guide warns that comparing only prices, and not coverage, is doing yourself a disservice. Line up quotes with the same limits and deductibles.

The CDI also recommends confirming your agent or broker holds a valid license. Check on its website or call 1-800-927-4357.

A few questions make quotes easier to compare:

1. Is the dwelling limit based on rebuilding cost? The CDI says it should reflect rebuilding cost, not your purchase price or market value.
2. Is it replacement cost or actual cash value? The CDI notes that with an actual cash value policy, you likely will not get enough to fully replace your home. Replacement cost generally gives you a better chance of rebuilding.
3. What is the deductible? The CDI says a larger deductible may significantly reduce your premium, if you can afford to take on that risk.
4. Are there discounts? The CDI suggests asking about discounts for items like burglar alarms, smoke detectors and sprinklers.
5. How much Loss of Use coverage is included? This pays extra living costs if you cannot live in the home after a covered loss.

Buying a condo or townhome? The CDI explains that the association typically insures the building structure and common areas, while your own policy covers your personal property, liability, loss of use and the unit's interior. Ask for the HOA's master policy details during escrow, and ask about loss assessment coverage, which the CDI suggests considering.

No. The CDI says homeowners, renters and condo policies generally do not cover earthquake damage, and the CFPB says the same about standard homeowners insurance. California law does require homeowners policies to cover fire damage caused by or following an earthquake.

Your insurer must offer earthquake coverage in writing every other year, and the CDI says you have 30 days from the mailing date to accept. No reply counts as a no.

Most earthquake insurance in California comes from the California Earthquake Authority (CEA). The CDI describes the CEA as a not-for-profit, publicly managed, privately funded entity established by the Legislature in 1996. You buy a CEA policy through the same participating insurer that carries your homeowners policy. CEA deductibles run from 5% to 25% of the dwelling limit, and the CDI notes the lowest available deductible is 15% for homes valued over $1 million.

The CDI calls the California FAIR Plan the insurer of last resort and says it should only be considered after a diligent search in the traditional market.

The basic FAIR Plan policy covers losses from fire or lightning, internal explosion and smoke. Because it does not cover perils like theft or liability, the CDI suggests pairing it with a separate Difference in Conditions policy. You apply through a licensed agent or broker registered with the FAIR Plan.

If your first agent can only offer the FAIR Plan, the CDI suggests asking other agents who represent different insurers.

If you are getting ready to buy your first home and want a calm plan for escrow, insurance and inspections, I'd love to help you map it out. Call or text me at 714.366.8575 | DRE: 01397168, or contact me. Jeanette Nelson is a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas.