Homeowner's Insurance - The Ins and Outs of Purchasing

I'm hoping you're at least in the process of making your home-owning dream come true. Better yet, you've already got that dream home, and now you want to find equally dreamy insurance to go with it.

Mortgage lenders usually require you to have homeowner's insurance for good reasons. Your home is probably the most expensive thing you will own, so protecting your investment is vital. Buying insurance is a lot cheaper than what it costs to pay for home repairs. And think about how much money you might have to fork over if someone gets hurt on your property. Insurance covers the cost of health care for folks injured at your place, and that's a lot more affordable than having to pay for it yourself.

Sure, you still might have to pay for a tiny portion of these expenses if your insurance policy has deductibles. But if you don't want to pay for anything out of your own pocket, then you'll get charged higher monthly premiums. These are among the decisions you'll get to make as you comparison shop for homeowner's insurance.

Four Areas of Coverage

As you shop for homeowner's insurance, you're going to hear about four aspects of coverage in most policies.

• Structural Damage. Like its name suggests, structural damage refers to the cost of repairing your property when damaged by accidents and acts of nature.
• Personal Belongings. This part of a policy gets you reimbursement for any losses from burglary or damage to your personal effects.
• Liability Coverage. If anyone gets hurt on your property, the cost of medical care is taken care of so that you can avoid a lawsuit. Think of it as legal protection.
• Living Expenses. In the event that your home is damaged to the point that it's uninhabitable, an insurance policy pays for the cost of temporary accommodations in your neighborhood.

Generally speaking, the total cost of those four areas should be your guide to how much insurance to buy. You probably already know the market value of your home, but if you suspect the property might be worth more money than what you paid for it, then get an appraisal. But take a good look at local real estate conditions before you pay for an appraisal. If nearby homes resembling yours are selling for less than what they were worth a few years ago, maybe now's not a good time to get your place appraised. On the other hand, if you've recently renovated or expanded your home, then it might make sense to get an appraisal.

Take Inventory

The value of your personal belongings requires some homework on your part. It's very easy to pick an arbitrary figure, but it's much more worthwhile to spend the time it takes to inventory every single personal possession on your property. That will ensure that you get the right amount of coverage for potential theft or damage to your effects.

Liability coverage and living expenses are also topics you might want to research. To get an idea of how much liability coverage you might need, look up typical medical costs in your area. Better yet, sift through local news about your area for stories about home injury lawsuits, and find out how much juries are awarding the plaintiffs.

Researching living expenses is much more straightforward: What does it cost to spend a night in a hotel near your home? What about the going rate for a one-month sublet of a property resembling yours? How much would six months of subletting cost? That ought to give you an idea of the amount you might need to get for living expense coverage.

Add up the values of your home, personal belongings, potential liability coverage and living expenses, and think of the resulting figure as a loose goal to keep in mind when shopping for homeowner's insurance. As you begin to price and compare specific policies, you'll likely revise that total amount. I also need to tell you about premiums and deductibles, so be sure to read that next.