So your renting days are over and you are on the verge of entering into the great American dream of "owning" your first home.  Decisions are flying at you from every angle; offers & counteroffers, mortgages, downpayments, potential redecorating, etc., and your realtor or mortgage company says, "Who is your homeowners insurance with?"  So you call your auto insurance people and the 800 lady on the phone or the bored staff person at the corner store throws some figures at you, you sign and you are all set for closing next month.  The problem?  You don't know what you just bought, whether you are covered well or how a homeowners insurance product even works.  What follows is an admittedly brief but basic overview of what and how a homeowners policy works.

Homeowners policies roughly as we know them today came into the marketplace in the mid sixties and replaced "fire" policies that had been used for decades.  The old policies essentially covered certain stated perils (fire, theft, wind, etc.), everything else was not covered.  Today homeowners insurance is much more consumer friendly and covers more situations but decidedly not all.  The policy could be looked at in three general areas; the home structure itself, your personal property, and your personal liability. 

The home is covered for "sudden and accidental direct physical loss" in most policies and essentially means that most everything is covered except for what is excluded.  This is the opposite of the old named peril approach.  It also means the "losses not insured" or the exclusions are now a crucial part of the policy.  The big ones; flood, earthquake, war, long term wear & tear, workmanship, certain water claims, etc. do happen.  This is a place where having a trusted agent to explain things in detail is extremely important and where I personally lose a bit of faith in the 800 number or internet world.   "Having a guy" like our parents used to for certain things still makes sense to me, especially here.  The bottom line  is making sure you have enough coverage to cover the entire rebuilding of the home should it be destroyed.  Replacement cost on a home is not it's market value or what the county thinks it's worth for property taxes or the amount of the loan.  It is what it would take to rebuild it not counting the ground beneath it.  Together with a good agent and some software programs you can choose the right amount for your home avoiding a nightmare down the road.  

Your personal property, your stuff, is still covered the old way, named perils;  fire, theft, smoke, vandalism, etc..  Most all policies will give you replacement cost without depreciation on your stuff, meaning you get new items should you have a covered loss and you replace it.  Keeping receipts for big ticket items and putting them in the firesafe you are going to buy for thirty bucks (it's time!) with your other important papers is prudent.  By the way CD's are not covered in your car if they are stolen so keep your moving sound library to a minimum.  We need to evaluate your current stuff;  jewelry, collectibles, sound systems. etc. to make individual modifications to a policy, one size does not fit all here.

Thirdly, your policy covers you for negligence should you need it.  Typically that amount starts at $300,000 but can be raised should your individual situation merit it.  Somebody slips outside your home on ice you didn't shovel, dog bites, and the like are potential situations that might cause loss of sleep for you.  This coverage also gives you legal defense should you get sued for a covered loss.

As you can see from this brief discussion homeowners policies are complicated, they require some individualization, and having a trusted advisor makes sense.  Our home is the biggest investment most of us will ever make, don't treat it lightly when it comes to insuring it.