Know the Difference: Choosing Homeowners Insurance Coverage

Owning a house is one of the biggest investments you can make, emotionally as well as financially. No matter what its market value is, a home is a place to unwind, a place to enjoy people you love, and a place to keep the possessions that mean the most to you.

Purchasing homeowners insurance is a great way to protect this investment, but how do you know how much or what kind of insurance to buy?

Six types of homeowners insurance

There are six basic types of homeowner’s insurance that can be covered in your policy. Knowing a little bit about each one can help you decide how much coverage you’d like to purchase.

The top two: dwelling and personal possessions

The two pieces of homeowner’s insurance that will have the most impact on how much you’ll pay are dwelling coverage and coverage for personal possessions.

Dwelling

If you were to lose your home to a fire or flood or other catastrophe, the dwelling piece of homeowner’s insurance would help you pay to replace the structure itself. It would also cover the cost of other attached buildings, such as an attached garage or office.

Personal possessions

This portion of homeowners insurance covers the loss of personal possessions. This includes loss through theft even if the items weren’t on the property when they were stolen.

Other pieces of homeowner protection

Covering legal expenses, medical expenses, loss of use and the loss of outbuildings on the property can also be part of a good homeowners’ insurance policy. Here’s a little bit more about these types of coverage:

Other Structures

Garden sheds, freestanding garages, wood shops, barns, fences and other outdoor structures that aren’t attached to the main building are included in this coverage.

Loss of Use

This can help cover costs if your home suddenly becomes uninhabitable for some reason. Major renovations or issues like black mold damage are times when this portion of homeowners insurance might be used.

Personal Liability

Personal liability insurance can help cover legal costs if you’re being sued because someone got hurt on your property. It can also cover liability for you or family members for accidents or other incidents, whether they happen on your property or not.

Medical Payments

While the personal liability section covers legal costs, medical payments cover the costs of emergency room visits and other medical bills if someone gets hurt on your property.

How much insurance do you need?

Taking a look at the types of coverage can help you decide how much coverage you want in each area. If you don’t have any sheds or other outbuildings, for example, you probably won’t need much coverage for other structures.

What about the others?

• For dwelling insurance, plan to buy enough coverage to be able to rebuild your home in its current location if it was destroyed. This includes the cost of comparable construction materials. What does your home appraise at? This might be a good place to start.
• Inventory your current possessions and buy enough coverage to replace all of them if they were destroyed.
• Liability and medical insurance—determine the risk factors on your property and discuss the best coverage options with your insurance agent. If you have a dog that bites, for example, you’ll want more liability and medical insurance than if you don’t keep pets at all.
• Think ahead to possible renovations or other reasons you might have to move out of your home temporarily. How much money would you need to get by? Discuss this with your agent to make sure you’re getting the right amount of coverage.

Other Considerations

One more thing to talk to your insurance agent about is how high your deductible will be.

If you can afford higher premiums, you may be able to drop your deductible for out-of-pocket-expenses, or vice versa. A higher deductible but lower monthly premiums might stretch your budget and allow you to pay your mortgage payments more easily.