Insurance Basics
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Understanding your home insurance policy


Just as with auto insurance, the higher your deductible, the lower your premium. If disaster struck, what's the most you could afford to pay all at once? That's your deductible. If you want to increase it, start socking money into a nest egg account. The next time you renew your homeowners insurance, increase your deductible by the amount you've saved. (Extra points: Take the money you save in premiums and put it into savings.)

Liability insurance

If a contractor slips and breaks his leg while repairing your roof, liability will cover you. Make sure you have enough to protect yourself financially.

"Bear in mind that if somebody's at your house at a party or barbecue, and gets hurt at your home, that you have proper liability coverage," says Iuppa. "And if they are drinking, leave and have an accident, you could be exposed to some liability."

If you have some high-dollar assets, consider an umbrella policy. Properly tailored, it should kick in where you homeowner's liability leaves off. And you likely can buy up to a $1 million in coverage for a few hundred dollars, according to estimates from the Insurance Information Institute.

Living expenses

Sometimes called "loss-of-use coverage," this is what the insurance policy would pay toward your living expenses after a loss while your home is being repaired or rebuilt. Find out under what circumstances it would kick in, what it would pay and for how long.

Apartments and condos

If you live in an apartment, your landlord will have insurance on the building, but you need to carry insurance for your possessions (often called "contents insurance" or "renters insurance"). In addition, some landlords will require that you also carry liability insurance in case anyone is injured while doing work inside your home.

If you own a condominium, you want to find out what areas are covered by the association and what you'll need to insure. As well as your own belongings, it's possible that you need to insure a portion of the structure. Check with your association attorney or management company before you buy and find out exactly what type of policy you'll need.

Your CLUE report

Many insurance companies participate in a claims database exchange in which claims information is stored by name and address. Insurance companies can then pull a report on an individual or location, just as a potential lender can pull a credit report. The most widely known claims database reporting system is called the Comprehensive Loss Underwriting Exchange, or CLUE.

If there have been a multitude of claims, or someone in the home has reported a particular problem, such as water or mold that raises red flags, you could have trouble getting insurance. Before you buy, ask the owner for a recent copy of the CLUE report so you know what you're getting. And keep your claims to a minimum.

"People should not be afraid to use their insurance," says Jeanne Salvatore, senior vice president of public affairs for the Insurance Information Institute. "But insurance is for big disasters and not for small things they can afford to pay for out of their own pocket."


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