How Do I Know What Coverages My Home Insurance Policy Needs?

Multiple factors determine how much and what type of coverage your home's insurance policy should provide. Your policy will consist of two main segments - your liability coverage and your property protection. Liability coverage is relatively simple, and covers the expenses related to injuries another person incurs as a result of an accident on your property. It also protects from lawsuits related to such accidents. For example, if your dog bites a door-to-door salesperson, your homeowner's liability insurance should cover the damages. The amount of liability coverage you should purchase depends on your personal preferences, as well as your habits regarding visitors. If you regularly host parties or have the neighborhood kids over to swim in your backyard pool, you'll want to purchase adequate liability coverage.

Property protection is more complex. It covers two types of property - your structure and your belongings. Your home's structure coverage includes your dwelling, it's permanently installed appliances, electrical systems, plumbing systems, water coolers, heating systems, central air conditioning systems and any detached structures, such as carports or storage buildings. Your belongings, on the other hand, consist of your personal furnishings, clothing, jewelry, furs, cash, weapons, electronics and other personal possessions.

When you purchase property protection, you have the choice of insuring your structure and belongings according to the replacement value or the market value. If you choose replacement value, your insurer will provide you with enough coverage to replace all of your losses due to a qualified event up to your coverage amount. Replacement value is typically preferable over market value, as choosing the latter means your insurer will only provide you with enough recompense to cover your structure's and your belongings' reasonable sale price to a willing buyer. Belongings typically depreciate over time, and if you lose your home during a poor housing market, this could mean you won't have enough money to rebuild your home and replace your personal effects.

Finally, examine the special needs of your property. Do you live in a flood zone? If so, you'll need to purchase flood insurance, as homeowner's insurance does not cover flood damages. Do you expect your home's value to increase considerably in coming years? Maybe you should consider inflation guard for your policy, which increases your coverage amount regularly to keep up with inflation. The additional coverage adds little cost to your homeowner's insurance premiums, but could save you thousands of dollars in the future.