Homeowners insurance is probably the best protection you could have for one of your biggest financial investments – your home. Mortgage lenders will require you get it.
What is Homeowners Insurance?

Homeowners Insurance is an insurance policy on a house, and its contents, that combines liability coverage and hazard insurance.

Peter Saucedo, a Financial Literacy Counselor at New Economics for Women says, “The biggest financial investment that most people make in their lifetime is buying a home. It would be unfortunate to just let it go by the wayside and to have an occurrence, such as a fire or a natural disaster, destroy it. I’m sure you’d like to have some kind of protection behind it.”

Remember, the lender is only concerned about protecting the structure – you should want to protect yourself against situations that could get you sued.

Insurance should cover:

• Your liability to others  

“Liability Insurance is obviously something that I recommend. I recommend it not only in the case of having remodeling or some repairs done to the structure itself, but in other cases as well. For example, how often do you hear stories where strong winds or a lot of rain over saturate the ground? Where the big pine, or big oak trees, fall over the fence and land on your neighbor’s house. Well, guess what? Now, you’re on the hook for not only your house, but his too,” explains Saucedo.

Insurance should cover:

• The structure of the house
• Personal possessions
• Living expenses if your house is damaged

Don’t forget that your homeowners insurance should protect the contents of your home.  
Homeowners insurance covers the reconstruction costs of the home and its contents...
If you need to buy these types of insurance, you may have to go through government programs.

The cost of homeowners insurance depends upon how much protection you want versus how much you want to pay.

There are three basic approaches – cash value, replacement costs, or guaranteed or extended replacement cost.

Levels of Coverage:

• Cash value - actual cash value minus the depreciation.

“For example, cash value takes into account an item, or items, that were destroyed in a fire. They will replace them, of course, based on the actual cash value minus the depreciation. After so many years, sure they’re not going to be worth what we originally got for them when we walked out of the store with them,” says Saucedo.

Levels of Coverage

• Replacement cost - cost to replace without depreciation and with a limit

Pete Moraga, Spokesman for the Insurance Information Network of California says, “Your replacement value policy will actually look at what the cost is to replace something regardless of what kind of depreciation there is, so depreciation doesn’t factor into that. Obviously, a replacement policy will cost a little bit more than cash value.”

Levels of Coverage

• Guaranteed or extended replacement cost – cost to replace without a limit

“With the guaranteed replacement policy, there is no limit. It will just pay whatever the cost is to rebuild that home if it is destroyed. Again, those policies are a little more scarce and rare, and they are very expensive,” says Moraga.

You can lower your premiums by limiting the overall scope or payoff of your insurance policy.

“The other thing that you could do is obviously increase your deductible. However, take into account that increasing your deductible is going to reduce your premium,” explains Saucedo.

Make sure to ask about what discounts available.

Know that there are various types of discounts when it comes to premiums. For example, if you have an alarm on your house, you could get a better rate.

If you have more than one policy with an insurance company, such as car insurance, or life insurance, you could get a discount. Make sure to ask about discounts that may be available to you.  

“The best thing in finding out more about insurance, or about how to get insurance, is visiting websites. There are a lot of great websites out there. Every insurance company has their own website. They have a lot of information out there for consumers, in order to better help them understand. It’s a good idea, to ask friends, family, and neighbors about their insurance companies and agents. Agents are great for getting that kind of information too,” says Moraga.