5-minute guide to home insurance

Saturday, July 31, 2010

5-minute guide to home insurance

A close look at what your policy does and doesn't cover may surprise you. Here's a 29-point guide to help you read it closely to determine what coverage is best for your situation.

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By MSN Money staff

What's the most important thing you need to know about your homeowners insurance? The answer: What it does -- and doesn't -- cover.

That list may not be as obvious as you think. Regular homeowners insurance will cover damage from fires, tornadoes and pieces of satellite that fall from the sky, but it won't cover havoc wreaked by flooding, hurricanes, earthquakes, acts of terrorism or nuclear meltdowns. (See "10 things your insurance may not cover.")

How do you know if you have the right coverage? After all, one survey found that 68% of households have too little to adequately protect their property. (See "Is your home underinsured? 8 key tests.")

Here are the basics you should have from your homeowners insurance:

You want enough coverage to rebuild your home from scratch. Don't count on your agent to give you an accurate figure. Get a square-footage estimate of the reconstruction value. It generally isn't the same as the fair market value. Remember: A "guaranteed replacement" policy isn't necessarily a guarantee.

Get "replacement cost" rather than "actual cash value" for your belongings. Make an inventory of your possessions and the cost to replace them. You'll likely need a rider to protect valuables like furs, jewelry, fine art and antiques.

Check your policy's "loss of use" provisions. How long will your insurer pay your rent while your damaged home is being repaired or rebuilt?

What matters as you shop

How do you get the best deal on homeowners insurance?

Shop around. Get online quotes here. Make sure the company is financially sound. You'll also get a discount if you buy your homeowners and vehicle insurance from the same company.

Raise your deductible. You can save up to 24% by increasing it to $1,000.

Buy the most liability insurance you can afford to protect you from lawsuits resulting from incidents like accidental injuries and dog bites. Consider an umbrella policy.

Make sure your insurer knows how close you live to a fire hydrant and fire station, and whether your home has deadbolts, smoke detectors and a security system.

Ask about discounts for seniors, longtime customers and nonsmokers.

Insure your house, but not your land.

Maintain a good credit score. (See "Your 5-minute guide to credit scores.")

Don't report damage to your insurance company unless you intend to file a claim. It could lead to higher premiums or dropped coverage. (See "Insurers keep a secret history of your home.") Insurance companies have access to several scores that rate your property and your potential to file a claim. Get a free copy of your property's claims history -- your Comprehensive Loss Underwriting Exchange, or CLUE, report -- at ChoiceTrust. You can get a report on your home for $19.50.