What the policy contains
A standard policy is six coverages sold as one. Dwelling coverage rebuilds the house. Other structures covers the fence, shed and detached garage, usually at 10 percent of the dwelling figure. Personal property covers your belongings, and loss of use pays for a rental while the house is repaired. Personal liability defends you if someone is hurt on your property and sues, and medical payments handles a guest's minor injury without a lawsuit. Liability often defaults to $100,000. Raising it to $300,000 or $500,000 costs little and is worth doing.
Insure the rebuild, not the price
The dwelling limit should equal what it would cost to rebuild the house at local construction prices, which has little to do with what you paid. The purchase price includes land, and land does not burn down. Ask the agent how the rebuild estimate was calculated, and check the square footage and finishes that went into it. Then choose replacement cost coverage for both the structure and your belongings. The cheaper alternative, actual cash value, subtracts depreciation, so a fifteen-year-old roof destroyed by hail is paid as a fifteen-year-old roof.
What is not covered
No standard policy covers flood, and none covers earthquake. Flood insurance is a separate policy, bought through the National Flood Insurance Program or a private carrier, and it typically carries a thirty-day waiting period, so it cannot be bought as the storm approaches. Water that backs up through a drain or a sump pump needs an inexpensive endorsement. Slow leaks, wear, pests and deferred maintenance are excluded everywhere, because insurance pays for sudden and accidental damage, not for a house wearing out. In coastal and hail-prone states, read the wind section closely. It often carries its own deductible, set at 1 to 5 percent of the dwelling limit instead of a flat dollar amount.
Deductibles and claims
Moving the deductible from $500 to $1,000 or $2,500 lowers the premium noticeably, and it matches how the policy ought to be used. Insurers share claims history through an industry database, a claim stays there for about seven years, and two or three small ones can bring a surcharge or a non-renewal. Pay for the $900 repair yourself and save the policy for the five-figure loss. Get competing quotes every two or three years, because premiums creep at renewal.
Tip Once a year, walk through the house recording video on your phone and open every closet and drawer. Store the file somewhere other than the house, and a contents claim takes days instead of months.
