To protect their investment, property owners generally purchase insurance to cover the liability of various risks. The three general categories of risk include protection against 1) destruction of the premises, 2) injury to others on the premises and 3) theft of personal property of the homeowner or family members. Most homeowner’s insurance policies cover all these risks. Policies should be examined carefully to determine the terms of such coverage.
Most homeowner’s insurance policies contain a coinsurance clause that requires that the homeowner maintain insurance equal to at least 80 percent of the replacement cost of the dwelling. This value does not include the value of the land. A homeowner may choose to insure 100 percent of the value of the improvements. Lenders generally require insurance that covers the mortgage balance.