With 95% of American homeowners carrying home insurance (according to the National Association of Insurance Commissioners), it’s clear that most of us know how important this type of insurance is. It really is impossible to overestimate the importance of insuring your home and its contents – home insurance should be considered essential for anyone who owns their own home.

Just as important is understanding the terms of your home insurance policy. If the worst happens and your home is damaged or destroyed, it would be a complete disaster to find out that your policy doesn’t cover everything you thought it would. As with any other insurance policy, if you have questions about something, don’t be afraid to ask as many questions as you need to so you understand exactly what your policy covers.

Standard home insurance policies

Standard policies cover things like damage due to tornadoes, hurricanes, and other destructive weather conditions, fire and smoke damage, vandalism, and theft. Earthquake and flood damages are not covered. A typical home insurance policy might cover the following:

• Your home, garden (including gardens and plants) and outbuildings on the property, such as a garage, garden shed or pool house.
• The contents of your house and outbuildings. This includes possessions borrowed from others and those belonging to non-paying guests.
• Vacant land owned by you.
• Cemetery plots.
• Legal responsibility for the unauthorized use of your credit card or checks.
• Liability for people injured on your property, including legal and medical expenses.
• Expenses incurred for your displacement of the dwelling (including the rent of temporary housing).

Standard policies may not cover the full value of items such as furs and jewelry, weapons, electronic equipment, or antiques. If you own these types of items, check your policy carefully; you may need to increase your insurance premium to ensure you are covered for its full value. Even if you don’t, it’s worth reviewing your policy annually; to make sure it accurately reflects the value of your home and possessions.

Extra Coverage Policies

Standard home insurance policies do not cover flood and earthquake damage. Instead, these must be paid for separately. These two problems tend to be concentrated in discrete regions of the country; therefore, they are not usually part of a typical home insurance policy. If you happen to live in an area where there is a possibility of floods or earthquakes, then additional insurance to cover them is essential. The downside, of course, is that this coverage tends to be very expensive: people who really need this coverage will pay much more for it than people who don’t.

Guaranteed Replacement Cost Policies

Guaranteed replacement cost coverage gives you exactly what the name suggests: if your home or possessions are destroyed, you’re guaranteed the cost to replace them, even if you don’t have enough insurance.

In terms of the house itself, this is an advantage because you are covered for the full replacement cost, even if you don’t know what the actual costs will be. Guaranteed replacement cost coverage is also a good idea for certain types of possessions, such as electronic equipment. Computers, for example, depreciate very quickly: with a standard insurance policy, you’ll most likely end up receiving only a fraction of what that piece of equipment is worth, which won’t be enough to cover replacement costs.