Insurance

When you own a home, you need homeowner's insurance so that you and the lender will be protected against financial loss if there's damage or loss of property.

Homeowner's insurance covers your home's structure and your possessions. The basic standard policy, or named perils policy, offers limited protection, to cover damage that results from fire and theft. More comprehensive plans with broader coverage are available, but have higher premiums, or payments.

How do deductibles work?

Every policy has a deductible, which is the amount you pay for a loss before the insurance company covers any of the remaining damage. Deductibles can vary from a few hundred to a few thousand dollars, and there's a direct relationship between the size of the deductible you choose and what you pay for insurance.

How much insurance?

As a general rule, you should insure your home for at least 80% of its replacement value, or what it would cost to rebuild your home in today's dollars. You might sleep better, however, if you insure your home for 100% of its replacement value. Keep these two things in mind, though:

• Be sure you understand what your insurer means by replacement value. Some insurers will cover the cost of replicating your current home as it was before the loss, including special details and features. Others will cover the cost of building a home of the same size but not necessarily with the same features.  There may be a noticeable difference in price between the two levels of coverage.
• When you're calculating your home's value for insurance purposes, you usually don't include the value of the property on which it's built although the land is a factor in the price you pay to buy. That's because the land usually retains its value and can be sold even if the home is damaged.