Your home is most likely the largest investment you will ever make so you need to be prepared

Your home is most likely the largest investment you will ever make so you need to be prepared and knowledgeable about protecting that investment. You shouldn't assume that you will always avoid a loss, so even if you don't plan on being at your home for that long you just don't want to take that chance. Homeowners often find that after a loss, they have the wrong insurance coverage amount.

There are some very common mistakes that people make when buying homeowner's insurance.

Buying the wrong amount of coverage. The typical homeowner's policy covers you for a replacement value, or at least 80% of it. The problem lies in the fact that the replacement value may be far different than the home's market value or purchase price. Getting an insurance policy based on the right coverage, even though it may be higher and more costly, is the best way to insure you are getting a policy that is right for you.

Having inadequate liability insurance. Most policies contain liability coverage but they usually only contain on average $100,000 in liability. That may sound like a lot but in the age of lawsuits and medical cost explosions this is very small as compared to what you may actually have to pay. Consider raising your coverage to at least $500,000 to make sure you are well covered.

Buying the wrong form of coverage. This is a very common mistake because most people let their agents tell them what they need. The variations of homeowner's policy are extensive and you should determine what you really need. You should cover your personal property on a named-peril basis, such as fire, flood, windstorm, etc. The structure should be on what is called an all-risk basis, which means it covers everything subject to a narrow list of excluded risks. It really isn't completely all-risk but it is far more comprehensive than the specified-perils approach for your personal belongings.

Choosing not to buy flood insurance. What once used to be bought only if you lived on a flood plain or a low lying area is now recommended to many homeowners. With Mother Nature as unstable as she is, many homes are at risk of flooding. It is very difficult to now decide who is at risk and who isn't, so it is better to be safe than sorry.

Failing to keep property inventory. Most people just take out an insurance policy without really knowing what personal property they own. You should keep a detailed list of your belongings including dates of purchase, costs, and other details. The best way to do this is to keep an updated video tape or still pictures of everything you have and keep it at an off site location such as a family member's home or office.

Not carrying a high enough deductible. It may seem more reasonable to you to carry a lower deductible so that you don't have as much out of pocket expense in the event of a loss, but because of the rising costs of home repair and replacement of valuables, it is often better to carry a higher deductible. A higher deductible will usually result in lower insurance premiums.

Not knowing the caps and limits. Many homeowners' think that all their personal belongings are covered up to their value but there are limits that you should be aware of. For example, theft of jewelry may only be covered up to $5,000, depending on the terms of the insurance policy. If you have valuable items, you may need to take out extra insurance riders on those items.