Insurance covers certain types of losses, called 'perils.' When it comes to natural disasters, most homeowners policies cover tornadoes, wind storms, and hail. Damage cause by flood and earthquake are typically excluded, but can be purchased for an extra cost. Many insurers offer a policy add-on for earthquake. Flood insurance is sold as a separate, stand-alone policy.

Pay attention to the homeowners insurance policy's settlement options, as this affects how much you receive to rebuild, repair, or replace insured damages. Standard homeowners insurance policies typically cover dwelling losses on a replacement cost basis (how much it takes to rebuild or repair at current market rates). Depreciation is not a factor. Some policies provide functional replacement cost (also called market value) coverage. This option considers the cost of rebuilding or repairing using modern materials to provide the functional equivalent of what was destroyed. Actual cash value is a third settlement options. Depreciation affects actual cash value settlements. Claims for personal belongings are typically settled in this manner. Insurance policies also limit claim payouts on high value items like jewelry, computers, artwork, antiques, and more.

Homeowners insurance policies include insure-to-value clauses that outline how much coverage you need on the dwelling. The dwelling limit requirement is typically linked to replacement cost, which is how much it takes to rebuild the house using materials of like kin and quality. Factors like square feet, age, building materials, basement versus crawl space, attached garage, and more affect the replacement cost calculation. It is best to choose a dwelling limit equal to the home's full replacement cost. However, policies usually allow an amount equal to eighty percent of the replacement cost. Adding guaranteed replacement cost coverage increases the dwelling limit requirement to full replacement cost. Insuring your home for less than its replacement cost becomes a problem when a loss occurs. You may end up with far less than the cost of repairs.

Most people have more personal belongings than they realize. Create an inventory to assess your contents insurance needs. Make a detailed, itemized list of belongings that includes year, make, model, description, serial number, and value whenever possible. Get appraisals on unique, or valuable items. Pictures and video recordings are also helpful. Keep the inventory in a waterproof, fireproof box, safe or ank deposit box, and update it periodically. Personal belongings are usually covered on an actual cash value basis (depreciated) for specific losses outlined in the policy. Most insurers offer a variety of optional endorsements to tailor contents coverage for the policyholder's specific needs.