1. Look for exclusions to coverage. For example, most insurance policies do not cover
flood or earthquake damage as a standard item. These coverages must be bought
2. Look for dollar limitations on claims. Even if you are covered for a risk, there may a
limit on how much the insurer will pay. For example, many policies limit the amount
paid for stolen jewelry unless items are insured separately.
3. Understand replacement cost. If your home is destroyed you’ll receive money to
replace it only to the maximum of your coverage, so be sure your insurance is sufficient.
This means that if your home is insured for $150,000 and it costs $180,000 to replace it,
you’ll only receive $150,000.
4. Understand actual cash value. If you choose not to replace your home when it’s
destroyed, you’ll receive replacement cost, less depreciation. This is called actual cash
5. Understand liability. Generally your homeowners insurance covers you for accidents
that happen to other people on your property, including medical care, court costs, and
awards by the court. However, there is usually an upper limit to the amount of coverage
provided. Be sure that it’s sufficient if you have significant assets.