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Ask the Home Insurance Expert

My husband and I are in the process of purchasing our first home. We are also shopping around for home insurance. Do you have any tips?

The most important rule to remember when buying home insurance is to get enough coverage to replace your house in case of disaster and to protect all your belongings. The coverage level should be based on the cost of rebuilding the home if it were destroyed--not on the market value.

Your lender will require you to have home insurance if you're taking out a mortgage to buy the house. But don't rely on the coverage levels mandated by the bank or mortgage company. Those levels are there to protect the house and don't take into account the value of your possessions.

Another important thing to keep in mind is the difference between replacement cost and actual cash value when it comes to insuring belongings. Home insurance policies automatically cover the household contents, such as clothing, appliances and furniture, up to 40 percent of the amount for which your home is insured. The automatic coverage pays the actual cash value of the item damaged--equal to the cost of replacing it, minus depreciation.

You might want to consider paying a higher premium for replacement cost coverage, which pays for replacing lost items with brand new ones. Say, for instance, your 5-year-old television is stolen. With actual cash value coverage, you'd get only the amount the old television is worth today. With replacement cost coverage, you'd be reimbursed for the cost of buying a new television.

Home insurance policies also have limits for certain types of items, such as jewelry and firearms. You may need to purchase extra coverage for those items.

Keep in mind that standard home insurance does not cover flood or earthquake damage. You'll need to purchase additional coverage through the National Flood Insurance Program if you live in a flood-prone area. You can buy earthquake insurance if earthquakes are a concern.

For more, see home insurance basics.

Last updated: Feb. 4, 2011
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