Homeowners Insurance - Buying Decisions

This section covers some of the decisions you will have to make when purchasing a homeowners insurance policy.

As a general rule, buy homeowner's insurance that covers as broad a range of catastrophes as possible and most types of losses. Homeowner's insurance policies have three key types of protections: property damage, loss of personal property, and liability claims by others. Here is a look at each.

Insuring the Structure

This is coverage that protects your house against catastrophes such as fire. The decision you must make here is whether or not the basic coverage is enough to cover such an event. Most lenders require that at least 80% of the cost to replace the house is covered. Any additional coverage would be an 'add-on' and require additional premium. Here are additional factors that you will want to consider:

1. Geographic area in which you live
2. Age of your home
3. Quality of the house's construction
4. Square footage of your home

Most experts agree that you should buy a policy that has guaranteed replacement costs, because then your insurance company must pay for the entire reconstruction regardless of actual costs, not just up to the estimated replacement cost. To lock in this guarantee, you will need to have purchased homeowner's insurance equal to 100% of your home's current replacement cost, as defined by the insurer.

Insuring your personal property

Homeowner's insurance can protect your personal property both at and away from home, including furniture, silver, jewelry, boats and collectibles. There is a maximum payout, though. So be sure you check your policy to see what the limits are for various items.

Valuable objects in your home should be appraised and listed individually on your policy as "riders". There usually is only a small additional charge, and the expense is well worth it because you will be fully reimbursed for each of these items. It's a good idea to buy replacement-cost coverage on the contents of your house, such as your furniture and electronics. That stereo system or computer you purchased for $2,000 a few years ago may be worth only about $250 today.

If something happens, and you don't have replacement-cost coverage, you would get only $250 because that's what these items are worth now. A replacement-cost rider for contents is not a major additional cost and it's another one of those seemingly small insurance provisions that can pay off if you ever have a loss.

Personal property coverage covers your property at or away from home. If you get something stolen at a party away from your home, for example, your homeowners policy will cover it.

Insuring against accidents

The third type of coverage provided under your homeowner's policy is liability coverage for you and your family. In today's litigious society, lawsuits are not uncommon even among friends and acquaintances.

Experts agree that you should have at least $300,000 of liability insurance coverage under your homeowner's policy. You also should consider "umbrella liability" insurance to cover damages that exceed your homeowner's insurance.

Additional Home Insurance Considerations

• Get separate coverage for your home based business
  (read our article on insurance for a business in your home)
• Keep good records, keep receipts, keep a complete home inventory.
• Renters should purchase renters insurance coverage

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