Home Insurance 101: What Every Homeowner Needs to Know

Replacement cost is not market value

Your home's market value includes the land, the neighborhood, the school district. Your insurance dwelling coverage covers only the cost to rebuild the structure with current materials and labor. A $750,000 home in a hot market might rebuild for $380,000. A $300,000 home in a slow market might rebuild for $410,000. Get a current rebuild estimate — most agents will run one for free — and rate your dwelling coverage off that number, not your Zillow estimate.

The 80 percent coinsurance trap

Most homeowner policies require you to insure your dwelling for at least 80 percent of its replacement cost. If you fall below that threshold and file a partial claim, the carrier reduces your payout proportionally. A $50,000 kitchen fire on a home insured at 70 percent of replacement cost might pay out only $43,750 — and you discover the gap at the worst possible moment.

The four endorsements people miss

Standard policies often exclude four things homeowners assume are covered: water backup from sewer or sump pump, service line breaks between the street and the house, ordinance and law coverage for code-required upgrades during a rebuild, and extended replacement cost that covers the gap when post-disaster construction inflation outruns your dwelling limit. Each costs $25 to $80 a year. Each saves you tens of thousands when you need them.

Personal property settlement matters

Read whether your contents are covered at "actual cash value" or "replacement cost." Actual cash value depreciates everything — a five-year-old laptop pays out at its used resale value, not what a new one costs. Replacement cost coverage typically adds 10 to 15 percent to your premium and pays you back the first time you file.

Liability coverage is the cheapest part

Increasing your personal liability limit from $100,000 to $500,000 usually costs $30 to $60 a year. A single dog bite, slip-and-fall, or teen-driver-at-the-wheel incident can blow through $100,000 in a week. If you own a home, you have assets worth defending. Buy the higher limit.