Homeowners Insurance Basics

• Homeowners insurance policies typically have three main components: building, contents and liability. Building coverage, which includes total replacement protection and damage repair coverage, is what your lender is most concerned with. Contents coverage protects the value of your personal items maintained in the home. If you have some highly valuable personal items, you might considered consider a separate policy rider for them. Liability covers your financial obligation if a third party is injured or suffers property damage on your premises.
  
  

Why It's Necessary

• For most people, your home is the most expensive and most important asset you purchase during your lifetime. Even if you do not get mortgage financing to cover the investment, you have to consider whether you can afford a total loss on the value of your property if it is destroyed. If you buy a $100,000 home without a mortgage, for instance, you need to realize that no insurance means you typically have no financial protection if a natural disaster destroys your property. Additionally, financing or not, you could face significant financial trouble if someone is injured on your property and you have no homeowners liability coverage.
  
  

Getting Coverage

• Setting up a home insurance policy is relatively simple once you select an insurer and policy coverage. Though most standard coverage elements are similar among insurers, you should always compare the rates and service reputations of several insurers to get the best deal on coverage from the start. You can often get insurance quotes by completing simple questionnaires online with the provider.
  
  

Premiums

• Your homeowners insurance premiums are generally based on the replacement cost for your property, along with the level of protection you select for each coverage category. Many homeowners pay insurance premiums with their monthly mortgage payment. You can pay insurance yourself directly and likely get a paid-in-full discount of 10 to 15 percent by paying annually. Another common way to save is to opt for a higher deductible amount. Enhancing the security features of your home and adding protective measures for windstorms and other natural disasters are also great ways to lower premiums, according to the Federal Consumer Information Center's "Twelve Ways to Lower Your Homeowners Insurance Costs." The FCIC also notes that some insurers offer discounts for good credit scores.