While purchasing a homeowners insurance the first issue of extreme concern is the amount of coverage you want. A recent survey conducted by the Insurance Information Institute revealed that two-thirds of all homes in America were under insured by an average of 27%. Thus it is important to opt for a right amount of coverage.

If you are finding it difficult to calculate the extent of coverage you want, there are several ways to do it. For instance if you want coverage for reconstruction of your house then multiply the square foot of your home by the local building cost per square foot. To know the cost of rebuilding your house, also known as dwelling coverage, you can take the help of any local insurance or real estate agent.

For instance in Nevada an average of 1268 square foot home that was built in 1997 has a current dwelling coverage of $81000. However if the homeowners feel that they are under insured by 27% and increased their coverage to $110,000, the monthly payment will increase by $7.50 per month.

Since most often the homeowners insurance also compensates for personal liability, you should also keep in mind how much coverage you require for certain legal expenses, medical expenditure or injury to any member of the house.

Though a standard homeowners policy comes with liability coverage of worth $100,000, insurance professionals usually advise to get of coverage of around $300,000 to $500,000 as liability coverage. To have this extra amount added to your standard homeowners policy, purchasing an endorsement is a wise idea.

You can also go for personal umbrella coverage in case the worth of your assets is more than $300,000 to $500,000. The umbrella cover is extremely useful once you are through with your homeowners or automobiles coverage. For instance if your colleague is injured at your house and revengefully sues you for $500,000, your homeowners insurance will cover for $300,000 and get exhausted but the amount left will be easily covered by the umbrella coverage.

For insuring your household things there are three ways. First is the actual cash value in which the policy pays for replacing your personal property using the method that is based on replacement cost of the thing minus the depreciation?

Second is the replacement cost strategy where you receive current amount for the thing you lost in any of the covered dangers. Though this way requires you to pay an additional premium but it can prove extremely beneficial in the long run.

The third option is the guaranteed replacement cost. This coverage means that there is no maximum payout applied to coverage of your insured personal possessions. You need to pay an extra premium but on the same hand increase your deductible to make the coverage somewhat cost-effective. Similarly the structure of our house is also to be insured in these three ways but with slight variation.

According to current facts and statistics presented by National Association of Insurance Commissioners in 2002 the average expenditure on homeowners insurance increased by 12% from $593 to $668 in 2003. Expenditure varies with the state. For example in 2003 Texas witnessed the highest average expenditure of $1328, in Oregon it was $461, Delaware $442 and Maine $462.

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The most important coverage contained in your policy is dwelling coverage. The amount you have for the dwelling is the maximum the insurance company will pay in the event your house is damaged or destroyed. The amount of dwelling coverage is determined by taking into account various factors, such as the interior square footage of the living space, the construction type, the year built, the number of bathrooms, etc. Using this data, your agent can calculate approximately what it would cost to rebuild your home. This number has nothing to do with the real estate appraisal value for your home; it is simply the amount of money required to reconstruct your house from scratch.

The next coverage listed on your insurance is called other structures. The amount of coverage available for other structures is customarily equal to 10% of whatever the dwelling coverage is. Detached sheds or detached garages fall into this category. Some people do not have any detached structures on their property, but the coverage is automatically included with the policy, sometimes at no cost.

After other structures you will see something called personal property. Personal Property includes all of the contents in your home. This includes furniture, rugs, beds, televisions, etc. Most homeowners policies provide personal property coverage equal to 50-70% of whatever the dwelling coverage amount is. You can call your agent to adjust this amount up or down depending on your individual needs.

Next is loss of use coverage. Loss of use is ordinarily 20% of whatever your dwelling coverage amount is. This covers expenses associated with having to move to another location temporarily if there is a loss at your home that prevents you from living there while the damage is repaired, such as a fire that destroys most of the home, or a severe mold problem.

The last important coverage, perhaps the most important to some people, is personal liability. You should maintain $500,000 of personal liability coverage. This coverage protects your liability in the event that something happens to someone while on your premises (such as slipping on an icy walkway), or when you do something that inflicts damage to persons or property while you are off premises (what kinds of activities are covered off premises varies depending upon the insurance company).

Now that you understand the most important components of the policy, you should also be aware of some other valuable coverages that you should ask your agent to add to it. You should probably request coverage for personal injury (libel, slander) and identity fraud be added. In addition, you can add coverage for your valuable items for an additional premium (such as jewelry, fine arts, fur coats, etc.). And finally, you should ask for an umbrella to be added to the policy. An umbrella provides additional liability coverage above the amount of underlying personal liability coverage. You can request anywhere from $1 million to $5 million dollars for your umbrella; some companies go as high as $10 million.
I hope this has helped you to make better decisions pertaining to your homeowners insurance. Even though everyone who has a home has insurance, most people have no idea what it covers. Then when it comes time to file a claim, they find that their policy does not meet their needs sufficiently. Use the information that was presented here to help you make intelligent choices so you can be prepared if something happens.

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