A close look at what your policy does and doesn't cover may surprise you. Here's a 29-point guide to help you read it closely to determine what coverage is best for your situation.
What's the most important thing you need to know about your homeowners insurance? The answer: What it does -- and doesn't -- cover.
That list may not be as obvious as you think. Regular homeowners insurance will cover damage from fires, tornadoes and pieces of satellite that fall from the sky, but it won't cover havoc wreaked by flooding, hurricanes, earthquakes, acts of terrorism or nuclear meltdowns. (See "10 things your insurance may not cover.")
How do you know if you have the right coverage? After all, one survey found that 68% of households have too little to adequately protect their property. (See "Is your home underinsured? 8 key tests.")
Here are the basics you should have from your homeowners insurance:
- You want enough coverage to rebuild your home from scratch. Don't count on your agent to give you an accurate figure. Get a square-footage estimate of the reconstruction value. It generally isn't the same as the fair market value. Remember: A "guaranteed replacement" policy isn't necessarily a guarantee.
- Get "replacement cost" rather than "actual cash value" for your belongings. Make an inventory of your possessions and the cost to replace them. You'll likely need a rider to protect valuables like furs, jewelry, fine art and antiques.
- Check your policy's "loss of use" provisions. How long will your insurer pay your rent while your damaged home is being repaired or rebuilt?
What matters as you shop
How do you get the best deal on homeowners insurance?
- Shop around. Get online quotes here. Make sure the company is financially sound. You'll also get a discount if you buy your homeowners and vehicle insurance from the same company.
- Raise your deductible. You can save up to 24% by increasing it to $1,000.
- Buy the most liability insurance you can afford to protect you from lawsuits resulting from incidents like accidental injuries and dog bites. Consider an umbrella policy.
- Make sure your insurer knows how close you live to a fire hydrant and fire station, and whether your home has deadbolts, smoke detectors and a security system.
- Ask about discounts for seniors, longtime customers and nonsmokers.
- Insure your house, but not your land.
- Maintain a good credit score. (See "Your 5-minute guide to credit scores.")
- Don't report damage to your insurance company unless you intend to file a claim. It could lead to higher premiums or dropped coverage. (See "Insurers keep a secret history of your home.") Insurance companies have access to several scores that rate your property and your potential to file a claim. Get a free copy of your property's claims history -- your Comprehensive Loss Underwriting Exchange, or CLUE, report -- at ChoiceTrust. You can get a report on your home for $19.50.
Insured, but not for everything
Here are more details about what a standard policy will not cover, in addition to those listed above:
- Damage from a sinkhole or mudslide.
- Damage resulting from poor maintenance or neglect. Example: Water damage is covered if you forgot to turn off the bathtub faucet; it's not if water is seeping through your basement walls, which is considered a maintenance issue.
- Sewer backups and mold.
- Damage caused by pests, like insects, birds and rodents, and by pets. If your miniature horse chews the side of your house, you're out of luck.
- Home-office equipment.
- Tenants' belongings. Renters insurance costs about $150 to $300 a year depending on the amount of coverage, the deductible and where you live. (See "The basics of renters insurance.") It includes liability to protect you if someone is injured in your apartment.
- Of note for condominium and co-op owners: Find out first what the building's insurance does and doesn't cover and insure accordingly. (See "Insurance worries for condo owners.")
Are you ready for the worst?
Separate policies are available to protect you in the event of a flood, earthquake or hurricane. These policies generally have high deductibles. FEMA funding is available for repairs and housing assistance not covered by those insurance policies.
- You can buy flood insurance if your community participates in the National Flood Insurance Program. The program's Web site offers an interactive look at flooding risk as well as estimates on premiums. Don't wait until disaster is about to strike; there's a 30-day waiting period for coverage to take effect, with some exceptions.
- Californians can get earthquake coverage from a few insurance companies or from the state-run California Earthquake Authority. Residents of quake-prone areas also should take steps to reduce the likelihood of damage to their homes. (See "Get the facts on earthquake insurance.")
- Coastal residents in some hurricane-prone areas may have difficulty finding wind coverage. Floridians should check out Citizens Property Insurance for more information on hurricanes.
- Those who live on mountaintops or deep in the woods or are otherwise considered high risk may also have difficulty purchasing insurance. Check to see if your state offers a Fair Access to Insurance Requirements plan.
Don't make a disaster worse
- Make digital copies of your financial records and family photographs and send them to a trusted friend outside your area. Use a video camera to record the contents of your home. (See "5 ways to save your papers in a natural disaster.")
- After a disaster, contact your insurance company as soon as possible.
- Check for damage as soon as it's safe to return. Take photos of the damage before you begin cleanup. Make temporary repairs to mitigate further damage.
- Read all of your policies, particularly the part covering "duties after loss."
- Watch out for fly-by-night roofing and tree-removal companies that flock to disaster areas, and beware of con artists impersonating insurance adjusters.
- Read the fine print before you sign anything from your insurance company. Don't sign away your right to future compensation when you get your first check, and don't accept a settlement offer that doesn't fairly compensate you.
- For more steps to protect against harm and loss, read "10 after-the-disaster do's and don'ts."
