What to Look for When Buying Homeowner's Insurance

Proper Protection Level

• When buying homeowner's insurance, a buyer needs to know the replacement cost of their home. If the home is a recent purchase, the buyer can use the purchase price -- though depending on the local market, it may cost more to rebuild the home. The best way to determine the value of a home is to have a local homebuilder or other professional provide an estimate of the cost to rebuild the home. Homeowners will need to insure the home for this amount. Homeowners will also want to make certain to have enough coverage for their possessions inside the home. Most policies cover 50 to 75 percent of the value of the home; homeowners will have to decide if that is sufficient for their situation.
  
  

Choosing the Insurer

• Most homeowners will keep an insurance policy on their home for decades. It is important for the homeowner to research the insurance company before buying a policy. Companies such as A.M. Best and Moody's provide information on the financial strength of insurers. Homeowners will want to choose only from insurance providers with the best ratings for their homeowner's insurance provider. Though the top ranked insurers are unlikely to have significant problems with service, homeowners should also contact their state's insurance commission for information on complaints against the company.
  
  

Exclusions

• Homeowners must understand what a policy covers and what it does not. Many homeowners' insurance policies have exclusions for various events. Two of the most commonly encountered exclusions in homeowner's insurance are exclusions for damage caused by floods and earthquakes. Though the additional cost of insurance coverage for earthquakes and flooding is significant, those living in areas where these can be an issue will need to make certain that the policy covers these events or purchase an additional policy that provides this coverage.
  
  

Actual Versus Replacement Value

• Homeowners should understand the difference between actual value and replacement value and which best meets their needs. Actual value coverage pays the homeowner for the value of an item in its current condition, while replacement coverage pays to replace the item. For example, a refrigerator that is five years old may only be valued at $200 but would be much more expensive to replace. Replacement value coverage is especially important for homeowners that own expensive furniture and electronic equipment as both lose value rapidly. Replacement coverage will add 10 or more percent to the cost of the insurance policy premiums.