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 separately.

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 chose not to
replace your home when it’s destroyed, you’ll receive
replacement cost, less depreciation. This is called actual
cash value.

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.

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