Homeowners Insurance: The Basics

Homeowners insurance covers not only the house itself -- it covers many other things besides, and it's crucial to make sure you have enough, particularly if you're moving.

It covers the contents inside; the loss of its use (putting you up at a hotel if you lose use of the home); the loss of other certain personal items outside the home; as well as any accidents that may happen inside the home that open you up to a lawsuit.

The utlimate question to ask yourself: If your home were destroyed tomorrow, would insurance rebuild the house and replace the contents inside? Many policies offer this "replacement" value as the default coverage, but check.

If not replacement value, be wary of policies that offer "fair market" or "cash value" policies. These will reimbursue your items for their value now, which takes into account depreciation and wear and tear, but which might be far less than what it costs you to replace your belongings. You'll also have to document the value of your stuff, which can be cumbersome.

What Do I Pay?

Many things affect your homeowners insurance premiums. For example, installing a sprinkler system will help protect the structure and the contents inside and should lower your premium. If your deductible -- which is the amount you pay if you make a claim -- is higher, your premium is lower.

Also, be aware that you want coverage for the amount it would cost to rebuild your home and replace the items inside. That's not the same as market value; it's simply the amount it would take to rebuild the home, not taking into account the land costs. A local builder or real estate agent could help come up with an estimate. Many policies will cover your household goods at 50% of the home's replacement cost; is that enough coverage based on the content's value?

Also check out the liability coverage in your policy, which covers you if someone were to get hurt on your property.

Things You Might Not Have Coverage For

Some items are typically not covered by homeowners insurance, such as floods and earthquakes. Also consider extra coverage for high-value goods like jewelry. Insurance companies often place a ceiling on how much they'll cover, so you'll need to investigate a special add-on, or "rider," to your coverage.

To help you determine all this, draw up an inventory of your stuff to ease the claims process. The Internet has made this easier, with several sites offering software that makes it easy to inventory all your stuff by room, with all the individual date you need to make claims.