Nothing is more important to you than your homeowners insurance. It covers everything. Not only does it cover your home, but it covers all sorts of personal liability exposures and other potential losses. In spite of its significance, very few people understand any of the coverages outlined in their policy.



The most important coverage contained in your policy is dwelling coverage. The amount you have for the dwelling is the maximum the insurance company will pay in the event your house is damaged or destroyed. The amount of dwelling coverage is determined by taking into account various factors, such as the interior square footage of the living space, the construction type, the year built, the number of bathrooms, etc. Using this data, your agent can calculate approximately what it would cost to rebuild your home. This number has nothing to do with the real estate appraisal value for your home; it is simply the amount of money required to reconstruct your house from scratch.

The next coverage listed on your insurance is called other structures. The amount of coverage available for other structures is customarily equal to 10% of whatever the dwelling coverage is. Detached sheds or detached garages fall into this category. Some people do not have any detached structures on their property, but the coverage is automatically included with the policy, sometimes at no cost.

After other structures you will see something called personal property. Personal Property includes all of the contents in your home. This includes furniture, rugs, beds, televisions, etc. Most homeowners policies provide personal property coverage equal to 50-70% of whatever the dwelling coverage amount is. You can call your agent to adjust this amount up or down depending on your individual needs.

Next is loss of use coverage. Loss of use is ordinarily 20% of whatever your dwelling coverage amount is. This covers expenses associated with having to move to another location temporarily if there is a loss at your home that prevents you from living there while the damage is repaired, such as a fire that destroys most of the home, or a severe mold problem.

The last important coverage, perhaps the most important to some people, is personal liability. You should maintain $500,000 of personal liability coverage. This coverage protects your liability in the event that something happens to someone while on your premises (such as slipping on an icy walkway), or when you do something that inflicts damage to persons or property while you are off premises (what kinds of activities are covered off premises varies depending upon the insurance company).

Now that you understand the most important components of the policy, you should also be aware of some other valuable coverages that you should ask your agent to add to it. You should probably request coverage for personal injury (libel, slander) and identity fraud be added. In addition, you can add coverage for your valuable items for an additional premium (such as jewelry, fine arts, fur coats, etc.). And finally, you should ask for an umbrella to be added to the policy. An umbrella provides additional liability coverage above the amount of underlying personal liability coverage. You can request anywhere from $1 million to $5 million dollars for your umbrella; some companies go as high as $10 million.

I hope this has helped you to make better decisions pertaining to your homeowners insurance. Even though everyone who has a home has insurance, most people have no idea what it covers. Then when it comes time to file a claim, they find that their policy does not meet their needs sufficiently. Use the information that was presented here to help you make intelligent choices so you can be prepared if something happens.