Homeowners insurance at a glance

Whether you are buying homeowner’s insurance for the first time, or shopping around to replace your current policy, make sure you know what you are buying. Too many people buy a policy just because their mortgage company requires it and then forget about it until they need to file a claim. This can lead to an unpleasant surprise if your coverage is less than you thought.

Here is an overview of what you should be aware of when evaluating policies.

Perils and Policies

In the insurance industry, perils are events that cause damage or loss of a home or its contents. A standard policy covers common perils like theft, fire, hail and hurricane. It also will usually cover water damage due to broken pipes, but not water damage from flooding. It also does not cover earthquakes or major mold damage. Coverage for perils not included in the standard policy must be purchased separately.

How Much Insurance is Adequate for Me?

Your insurance coverage should be enough to allow you to recover fully from a loss, which will depend on your particular circumstances. Start by determining how much it would cost to rebuild your house. This is the amount of dwelling coverage you need.

Other parts of your policy cover specific types of losses.

Personal Liability Coverage

This provides payment of medical expenses for any non-residents injured on your property, up to the coverage limits you purchase. It will also cover you if the injured person sues.

Insuring Your Personal Property

This portion of your policy covers the contents of your house, and is usually 50%-70% of your dwelling coverage. Make sure this is adequate by inventorying your belongings and estimating the cost to replace them. You may need to purchase additional coverage, especially for expensive items or those that receive only limited coverage, like jewelry, electronics or guns.

Replacement cost coverage is more expensive than actual cash value, but it will ensure you can actually afford to replace your possessions.

Flood and Earthquake Coverage

If you live in a high-risk area, you may be required to carry this insurance, especially if Fannie Mae or Freddie Mac holds your loan.

Even in low-risk areas, flood insurance may be worth purchasing, because storms and backed-up sewer systems can cause floods anywhere, and it takes very little water to cause thousands of dollars in damage. The federal National Flood Insurance Program sells reasonably priced flood insurance up to $250,000, and anyone may purchase it, as long as your community participates in the program.

Other Insurance for Homeowners

Additional protections you may want to consider include:

* An umbrella policy: This provides additional liability protection, anywhere from $1 million to $5 million, if you exhaust the liability portion of your regular policy. This is often a worthwhile investment these days, when the smallest injury or insult can lead to a big lawsuit.

* Business insurance: If you run a business out of your home, your homeowner’s policy may not cover you adequately if a client slips on your steps or a burglar makes off with business property. Protect your business with separate coverage for your business equipment and operations.

* Renter’s insurance for a child at college: Your homeowner’s policy will most likely cover a college student’s possessions up to 10% of your policy limits, but with all the electronics kids take to school these days, that may not be enough. Consider renter’s insurance for your college student.

Shopping for Insurance

 Not all insurance companies are equal. Premiums can vary by several hundred dollars for the same coverage, and the quality of customer service varies, too. Talk to at least three different companies. Get quotes and evaluate the customer service representative’s helpfulness. If you are unsatisfied with the experience, don’t expect it to improve after you become a customer.

You can also get quotes online, either from individual companies or from one of the services that compares rates at several different companies for you. Use this option only if you know the type and amount of coverage you need.

Picking a Company

All things being equal, you can, of course go with the lowest quote. However, make sure you are getting the coverage you need and that the customer service department is responsive to your needs. You may also want to investigate customer reviews on sites like Yelp or ConsumerAffairs.

Insurance is one of those things you want to have but hope to never use. To ensure you are always adequately covered, make sure you know exactly what your basic policy covers, purchase additional coverage if necessary, and reevaluate your insurance needs periodically.