What Do I Need to Know About Homeowner Insurance?

Shopping for any type of insurance can be intimidating. Your home may be one of your larger investments, and it is important to protect that investment. By better understanding what your homeowners insurance policy consists of, you may be able to find the best coverage for your needs.

Homeowners insurance is a package insurance policy and has three parts:

  1. Your home and other structures
  2. Possessions such as jewelry, electronics, or personal computers
  3. Personal liability

Your Home and Other Structures

The insured value of your home is based on reconstruction cost, rather than market value. Your insurance company will use a construction cost estimator to determine how much to cover your home for. When shopping for a homeowners policy be prepared with the square footage, construction, and the features of your home.

Older homes with traditional building methods and materials will cost more to rebuild. Lath and plaster walls are costlier to repair than drywall, and many companies will not guarantee like materials and construction. If originality is important, make sure your insurer will provide it. The cost of your policy will be higher, but if the home's value is tied to originality it may be worth the higher premium.
Replacing outbuildings like shops or home studios can exceed the policy provisions, so make sure to get an estimate on the reconstruction cost of such structures and increase coverage if needed.

Personal Property

Your possessions are covered for a percentage of the home's insured value. Within this overall limit are several smaller limits for various classes of property, like firearms, cash and securities, jewelry, and collectibles. Ask about these limits, and make sure to get adequate coverage for what you have. Be prepared to provide appraisals and proof of ownership for any items.

You should also pay particular attention to property used in business. Limits for business items can vary depending on where the loss took place. Anything used to earn money can be classified as business property.

Personal Liability

Personal liability covers you against claims or lawsuits resulting in bodily injury or property damage from your property or activities. For example, you would probably be covered under the following circumstances:

  • A slick walkway causes the delivery man to fall
  • Your child ran into the street and caused your neighbor to crash their bicycle
  • Your dog bites the mailman. Although many insurers provide this personal liability coverage to their policy-holders, some insurers exclude certain breeds. If you have a dog, check to make sure the breed is covered

Personal liability premiums are relatively inexpensive. If you have pets, of if your child's friends are frequently at your home, or you have another special exposure, you should consider raising your limit.


A deductible applies to all non-liability losses. Like any insurance policy, a higher deductible will lead to a lower premium, but be careful--sometimes the difference in your premium is too little to be worth the extra exposure. Also, you should stick with a deductible you can afford.

If you may struggle to put together the deductible, or the deductible exceeds what you have in a savings account or emergency fund, you should consider a higher premium and lower deductible amount.
Be sure to customize homeowners insurance coverage to match your needs, and get a few quotes. Multi-policy discounts can save you hundreds of dollars a year, so shop for auto insurance at the same time.

This Guide to Money answer includes the topics: Protect, Insurance.

Ryan Hurlbert lives and works in the Pacific Northwest. As an insurance agent, he produced and presented educational seminars on various topics from insurance basics to strategies for dealing with teen drivers. He has researched and produced marketing materials in the insurance, auto, and financial industries. Ryan majored in business and received his Bachelor of Science degree from Portland State University.

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