Although the standard homeowners insurance policy covers damage caused by certain major threats—fire, hail, wind, lightning, falling trees, tornadoes, cars, and vandals—it doesn’t cover some others. Those include earthquakes, hurricanes in many locations, and flooding, whether caused by bursting levees, overflowing rivers, or a spring thaw. So you must buy extra coverage for those perils.
Standard policies, called HO2 or HO3 policies, cover damage to your home and other structures on your property, such as a garage, barn, shed, and fencing. Insure the "replacement value" of your home, which is often higher than its tax-assessment value and market price. You should also opt for two extra-cost riders: the "extended coverage" rider, which adds up to 30 percent to replacement value to cover higher costs for materials and labor that often follow a natural disaster, and the "ordinance" or "law endorsement" rider, which pays the higher cost of making repairs that conform to current building codes.
Standard policies also cover your furniture, electronics, clothing, and other belongings as well as your liability for people injured in your home or for damage that you, your children, and your pets cause to others. Liability coverage typically starts at $100,000; you should buy at least $300,000. These extras will raise your premiums, of course, so keep that in check by taking a $500 or $1,000 deductible, and be sure to keep that amount in savings in the event of a loss.
A standard policy doesn’t cover flood damage, which can be quite expensive. Just an inch of water can cause $21,000 in damage, mostly to carpeting and finished flooring, and for cleanup. Private insurers usually don’t cover flooding at all, but you can buy federally sponsored protection from your agent through the National Flood Insurance Program. (Go to floodsmart.gov for information). If you live in a high-risk area, your mortgage lender probably requires you to have flood insurance. But even if your risk is moderate to low, you should consider it because premiums are commensurately lower than standard- or high-risk coverage.
When the toilet backs up or the sump pump fails, neither flood insurance nor the standard homeowners policy will cover it. Buy separate coverage or an endorsement for $40 to $50 a year.