Homeowners basics

Homeowners insurance, also called property insurance, protects you from damages to your:

• Dwelling. A dwelling is the structure you live in. For coverage purposes, dwelling also includes any attached garages or units. A basic homeowners insurance policy may also cover damage to detached structures on your property such as a shed or swimming pool.
• Personal property. Personal property includes furnishings and other belongings that you use, wear or collect. A basic policy insures these items from theft or peril-related damages. However, jewelry and other collectibles often require separate coverage.
• Liability. Liability coverage pays for accidents that occur on your property for which you are held responsible. Liability includes a neighbor being hurt on your property or someone tripping on your child's bike left on the sidewalk.
• Living expenses. In case you have to live elsewhere while your home is being repaired for a claim, a basic homeowners insurance policy is likely to cover additional living expenses that you incur.

Like any other type of insurance, you pay a premium to buy a homeowners insurance policy. An insurance company bases your premiums on:

• Claims in your area. An insurance company will look at the history of claims in your neighborhood to estimate a premium. For example, if your neighborhood has experienced a high rate of burglaries or wildfires, you will likely pay a higher premium.
• Your claims history. If you are renewing a homeowners insurance policy and have made several claims, you should expect to pay a higher premium. In extreme cases, insurance companies may decide against renewing a policy.
• Value of your home. You can obtain policy coverage for the replacement value of your home or its actual cash value. Replacement cost coverage protects you from inflation in home-repair costs. Actual cash value insures your home for its current value.
  
  Actual cash value is likely to be lower than replacement-cost value for all but the newest homes since homes depreciate over time from age and use. Mortgage lenders generally require coverage for the replacement-cost value of your home.
• Deductible. A deductible is the amount you pay before the insurer begins to pay your claim. By paying a higher deductible, you're sharing the insurer's risk of paying a claim on your home. As a result, the insurer is likely to offer a lower premium.
• Safety measures. Installing fire detection, sprinkler and theft-deterrent systems can help you to lower your premiums. You can also take steps to reduce the possibility of an accident occurring on your property.

Be sure to read your policy carefully to see what perils are covered and what are excluded. Damage from storms, lightning, fire and smoke is generally covered in a basic homeowners insurance policy, but damage from earthquakes or floods is generally excluded. These perils, along with hurricane and tornado coverage, often need a separate policy or policy rider.

Together with auto insurance, homeowners insurance constitute what is called property & casualty insurance. P&C is distinct from life and health insurance. Some insurers offer P&C insurance while others do not. You may find that your current auto insurer is willing to issue you a homeowners insurance policy.

Like all insurance in the U.S., homeowners insurance is regulated by state insurance commissions. The umbrella organization is the National Association of Insurance Commissioners (NAIC). The NAIC maintains a directory of state insurance commissions at its Web site.

If you have any questions concerning policy coverage, exclusions or limits, contact the insurance agent or company that sold you the policy or your mortgage lender.