Homeowner's insurance: Protect your home and its contents

You could look at homeowner’s insurance as one of the necessary evils of home ownership. But if your home is ever damaged by something like wind, hail, fire, or falling tree limbs, or if you’re ever burglarized, you’ll be glad you have homeowner’s insurance to cover the cost.

In fact, homeowners incurred $27.6 billion in losses in 2004, according to the Insurance Information Institute (www.iii.org). The vast majority -- 84 percent -- of those losses were for property damage and theft, the institute says. Homeowner’s insurance also includes liability coverage if someone hurts themselves on your property.

How it works

Homeowner’s insurance works like most other insurance plans: You pay monthly or annual premiums for protection against covered losses. Each homeowner’s insurance policy is different in terms of what kinds of losses are covered and the size of the deductible (the amount you have to pay yourself before insurance coverage kicks in).

The Property Casualty Insurers Association of America warns that homeowners need to understand the difference between the market value of a home, the assessed (tax) value, and the replacement cost. Not all homeowner’s insurance policies cover the cost of replacement versus the depreciated value of either the property or the contents of your home.

It’s important to review your homeowner’s insurance policy annually to make sure you have enough coverage. Your home may have appreciated in value, especially if you made home improvements. The cost of replacing the contents could have gone up since you purchased your homeowner’s insurance policy. And, the Property Casualty Insurers Association points out that it costs 10 percent to 20 percent more to rebuild a home than to build a comparable new home.

Some homeowner’s insurance policies will cover the cost of living in a hotel or other lodging while extensive repairs are being made to your home.

What type of damage will your policy cover?

Most homeowner’s insurance policies will cover damage from fire and so-called acts of God: wind, rain, hail, snow, ice and damage from falling trees or limbs, according to the National Association of Insurance Commissioners. One major exception is flood insurance, which must be purchased separately from your homeowner’s insurance. Depending on how close you are to a flood plain, your mortgage lender might even require you to purchase flood insurance.

Generally not covered by homeowner’s insurance policies are interior water damage from a storm -- unless caused by exterior damage -- sewer backups and removal of fallen trees that didn’t land on your house, according to the insurance commissioners group.

Some policies also won’t cover food spoilage from extended power outages, or damage in your home from mold. You may be able to purchase additional coverage, or endorsements, to protect yourself from these kinds of damages.

Most lenders require you to carry a certain level of homeowner’s insurance to protect their investment in the event of a catastrophe. Your insurance premiums can be included in your mortgage payments.

Make sure you ask your lender what their requirements are. Then, consider your particular needs and decide if you want coverage above and beyond what they require. No matter how much coverage you decide to have, one thing is for sure: Homeowner’s insurance is a must.