Having homeowners insurance is not required by law.  However, most mortgage lenders require you to have homeowners insurance in order to borrow money from them.

Even if you have a relatively new, well maintained house, homeowners insurance can help you in situations that may not be preventable.  For example, you are having a dinner party at your house. A group of guests is gathered on the back patio, and one of the guests trips on a loose tile and breaks their ankle. You, as the homeowner, are potentially liable for the guest's injury. The right homeowners insurance policy should protect you against legal action and pay for the injured persons's medical bills.

Now that you know why you need it, let's take a look at what it is you're buying.

Different policies exist for renters, owners of mobile homes, people seeking bare bones coverage and those living in homes that are very old, but most homeowners will purchase what is called an HO-3 policy. This insurance policy covers your home and its contents against damage and theft, as well as you, the owner, against personal liability if someone is injured while on your property. This coverage also includes damage caused by pets and most major disasters (earthquake may be available by endorsement); flood requires a separate policy.  Homeowners insurance does not cover problems that result from poor maintenance or general wear and tear. A basic homeowners insurance policy should also cover other structures on your property and should provide for living expenses in case you are not able to live at home after a fire or other insured disaster. The amount of coverage provided for each of these items varies depending on the insurance carrier and the type of policy.

One of the first things you need to know about your policy is the liability limit. The liability limit determines how much coverage you have should something happen to your home. These limits usually start at $100,000, but policies can be purchased with much higher limits. Most experts recommend that you have at least $300,000 to $500,000 of coverage.

When someone talks about the amount of coverage they have, or their liability limit, they are probably referring to the coverage for their home -- that is, for the amount of money it would cost to rebuild their home given the price of materials and labor in the area (this is known as replacement cost). This amount is not the same as the purchase price of your home, which accounts for factors like the value of the land. A quick estimate of your rebuilding cost can be done by multiplying your home's total square footage by the building cost per square foot.

While your replacement cost limit is a reflection of the amount of coverage for your actual home, other structures on your property, such as a garage, are usually covered for 10 percent of that amount. Coverage for personal belongings usually falls somewhere between 50 percent and 70 percent of the amount of coverage on the structure of the home. And, as mentioned earlier, in case you have to live somewhere else because of damage to your home, most plans cover costs of living away from home -- hotel, restaurants/food, etc. -- up to 20 percent of your home's liability limit. Other policies may provide unlimited coverage for living expenses but only for a limited period of time. 

Contact Stratton Insurance Group to get a quote.  We all believe that it will never happen to us but there is always that chance and it can be very expensive to replace your possessions.