If borrowing money to finance your home, the lender will require you to purchase homeowner's insurance to cover against hazards.

Because of recent losses, insurance companies are limiting their exposure by refusing to cover "high-risk" homes or individuals, so it's important to shop around for homeowner's insurance.

Insurance companies may look at your credit history, as well as obtain a Comprehensive Loss Underwriting Exchange report, which includes a complete history over the past five years of claims filed, insurance payouts, and inquiries about insurance policy coverage.

Your lender will require proof that you have adequate homeowner's insurance and most likely will require you to pay the first year's premium.

Comparing insurance Coverage

Compare at least three different quotes to get a sense of the best insurer for your needs. When requesting a quote, be prepared to provide (at the minimum) the address, age of the home, total square footage and type of construction.

Questions to Ask

-  What type of policy would you recommend for the type of home I am purchasing (single-family home / condo / townhouse).

-  What is the amount of coverage required?

-  What hazards will your policy protect me against?

-  What hazards will your policy not cover?

-  Is additional coverage available for hurricanes, earthquakes, flooding, etc.? What is the cost?

-  What are the limitations of coverage for detached buildings/structures?

-  What are the limitations of coverage for jewelry or other valuables?

-  What is the additional cost for total replacement coverage?

What kind of insurance?

A standard homeowners policy protects against fire, lightning, wind, storms, hail, explosions, riots, aircraft wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight of snow or sleet, collapsing buildings, freezing of plumbing fixtures, electrical damage and water damage from plumbing, heating or air conditioning systems, according to the Insurance Information Institute, a Washington, D.C.-based nonprofit group for the insurance industry.

Such policies are "all-risk" policies, which cover everything except earthquakes, floods, war and nuclear accidents.

A basic policy can be expanded to include additional coverage, such as for floods and earthquakes and even workers' compensation for servants or contractors. Home-based business-coverage, an increasingly popular rider, does not cover liability associated with the business.

Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. On a 2,000-square-foot home, for example, if the replacement cost is $80 per square foot, the house should be insured for at least $160,000.

For personal items, homeowners can increase their coverage beyond the depreciated value of items such as televisions or furniture by purchasing a "replacement-cost endorsement" on personal property.

Some experts recommend an inflation rider, which increases coverage as the home increases in value.

What is guaranteed replacement cost insurance?

Guaranteed replacement insurance is a more comprehensive policy. It tends to cost more, but it promises to cover the complete costs less deductible of replacing a destroyed house. With these sorts of policies, limits on the policies are not as common, because complete coverage is more explicit.