What to look for when shopping for homeowners insurance

Homeowners insurance is a sort of jack of all trades.

It covers not only the cost of the house itself, but the contents inside; it covers the lost of its use (additional living expenses you might incur, like staying at a hotel, if you can't use the home); it covers the loss of other certain personal possessions of the homeowner outside the home; and it covers accidents that may happen inside the home for which you get sued.

However, that very nature can make shopping for home insurance a challenge, because it seems complicated.

But here's the bottom line you need to worry about: If your home were destroyed tomorrow, would insurance rebuild the house and replace all of the contents inside? Many policies will offer this “replacement” value as the default coverage, but be sure to ask so you know for sure.

If it's not replacement value, watch out for “fair market” or “cash value” policies. This will reimburse your stuff at their current value, which takes into account depreciation and wear and tear, which might be far less than what it costs you to replace your stuff. In addition to coming up short with the dollar amount, it can create a headache for you because you'll need to document the value of your belongings.

If you have replacement value insurance, be in contact with your agent if you make any renovations on the house that might affect its worth–and thus its replacement value.

So How Much?

Many things affect your premium, such as sprinkler systems or fire alarms, which help protect the structure and the contents inside, and the deductible, which is the amount you pay when you file a claim. A higher deductible carries a lower premium.

You want coverage for the amount it costs to rebuild your home and replace the stuff inside. It's not the market value, but 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 of that amount.

Many home insurance policies cover household goods at 50% of the house's replacement cost; be sure to check through your belongings and determine if it's not enough coverage.

Things You Might Not Be Covered for

Some items are typically not covered by homeowners insurance, such as earthquakes, floods or war. Insurance can be purchased separately for earthquakes and floods.

You should also investigate coverage for high-value goods like jewelry. Insurance companies often place a ceiling on how much they'll cover, so investigate whether you need a special add-on, or “rider,” to your coverage.

Now put together a inventory so you have good information to file a claim if you suffer a loss. To find a good insurer, ask around for recommendations. If you like your auto insurer and they offer home protection, check them out also.