One major option in purchasing a homeowner’s insurance policy is deciding whether you want replacement value or actual cash value on your personal belongings inside your house.

If you choose actual cash value you will need to remember this is current market price and it is a depreciated price. For instance, if you had a 10 year old RCA television that was damaged in a house fire, the insurance company would price a new RCA and depreciate it for however many years old the television was when it was damaged. This price is normally much lower than the price you would have to pay for it new. (Note: Depreciation is the decrease in the value of the property since the time it was purchased because of age or wear and tear.)

The other choice is replacement cost, which is the current price for replacing your 10 year old RCA television. For instance, if your television was damaged then the insurance company would reimburse you at the price of a new RCA television.

There are other things to consider when deciding if you want replacement value or actual cash value. Do you have signed artwork, costly collectibles, an enormous amount of jewelry, or a priceless stamp collection? You may be required, by your insurance carrier, to have these type items appraised so a market value can be established prior to issuing your homeowner’s policy. This is a safeguard for you and the insurance carrier.

Replacement coverage is a little more costly than actual cash value. Replacement coverage will cost approximately 10 percent more in premiums, but it may be well worth the extra few dollars, depending on the contents of your home.

When shopping for homeowner’s insurance be sure to verify the exact definition of replacement value and actual cash value with your insurance agent. Most standard homeowner’s insurance policies cover personal belonging on an actual cash value basis.

The more educated you become, the easier it will be if you are in a situation resulting in damage to your home.

Some people consider insurance rates to be astronomical but insuring your house is mandatory by most lenders and provides peace of mind for the homeowner. However, there are steps to help you, the homeowner, save money on your homeowner’s insurance policy.

1) Individualize your coverage

This simply means get coverage that pertains to the area in which your house is specifically located. If your home is in a hurricane prone zone, then you will definitely want to make sure your property is covered for hurricane damage. On the other hand, if your house is located on a mountain you may want to forego flood insurance. Individualizing your coverage can save you money in premiums and also save you money in repairs if you are not covered.

2) Older houses.

Typically the older the house the more your homeowners insurance will cost. This is because older homes are expected to have more problems. If you have upgraded your home, you may be able to save some money in premiums by proving to the insurance company you made the upgrades. For example, an older roof is more likely to leak than a new roof. If you replaced the roof on your older home and present the documentation to the insurance carrier, you may save yourself some money in premium charges. Also upgrading electrical systems and water systems in an older home can reduce the amount of your premiums.

3) Buy New in a Safe Neighborhood

Newer homes are less costly and less prone to structural problems so right off the bat you will save some money on insurance premiums. Insurance companies like to reduce their risk, so if you purchase a home in a safe neighborhood you may also be able to pocket the reward.

4) Security System/Smoke Alarms

A security system is regarded as another level of security and the insurance carriers usually appreciate this. Smoke alarms are equally appreciated. Insurance carriers like it when their customers try to safeguard their property and most of the time you will see a reduction in premiums for your effort.

5) Are you over 50?

Some insurance carriers offer discounts to individuals over the age of 50. This is a typical benchmark, so be sure to ask your insurance carrier directly.

6) Deductible

The higher your deductible, the less your premiums will be. However, remember that an unexpected turn of events may cost you a lot at one time if you have a high deductible on your homeowner’s insurance policy.

7) Multi-discounts

Multi-discounts are usually house, car, motorcycle, recreational vehicles, or a second home. If one carrier can provide you with all your insurance needs they usually provide a financial incentive for having all your policies with them. This is also very convenient for the buyer because you only have to remember one company.

Shop around.

Not all homeowner’s policies are the same and not all insurance carriers are equal. Shop around until you find your perfect match.

These are the Top 8 tips for choosing a homeowners insurance policy. If you use all the eight tips you will most likely realize a reduction in your premiums. Talk to your insurance carrier or agent and see if any of these tips can help you save money.

First and foremost, you must know your liability limits of your homeowner’s insurance policy. The liability limit determines how much coverage you have if something were to happen to your house.

Liability limits usually start at $100,000 but policies can be purchased with much higher limits. When people speak of the coverage limit on their house, they are typically referring to their liability limit. This amount is what it would cost to rebuild the house if it were to be damaged or destroyed. This amount is not the same as the purchase price. The purchase price includes the price of the land. A quick example of how to figure the cost of rebuilding your house is to take your total square footage and multiply this by the square foot cost of new construction in your area. The cost of the land is not included because your land will always be there.

The liability limit is a reflection of the amount of coverage for your actual home. Other structures on your property, such as a detached garage, outbuilding, or storage shed, are usually covered for 10 percent of the total liability amount of your residence. For example, if your liability limit on your house is $300,000 then other buildings on your property would have a liability of $30,000.

The value of your personal belongings inside your home is insured based on what the item is and the current market value. On a basic homeowners insurance policy this amount may be 50 to 70 percent of your total liability limit. If your limit is $300,000 your personal belongings inside the house would have a limit of $150,000 to $210,000. On large ticket items you may be required to provide a receipt or appraisal to determine the actual value.

Also remember that most standard policies do not cover earthquakes or floods. Most insurance companies carry “riders” that provide additional coverage for these events if you live in an area prone to floods or earthquakes. It is highly suggested to research flood insurance even if you are not in a flood prone area. Floods tend to happen in places where they are least expected, so research flood insurance carefully.

Always check with your insurance carrier or agent so you fully understand exactly what your liability limits are and what is covered by your policy. There are several additional policies you can purchase to protect against various different emergencies. A thorough review of your policy may indicate that an increase in limits is necessary.

Homeowners insurance protects your home in case of theft, vandalism and (some) natural disasters. There are several types of homeowners insurance with the most common being referred to, in industry standards, as an HO-3 policy.

There are other types of homeowner policies that exist for renters, mobile home owners, and people who own very old homes. However, the HO-3 policy is the most common homeowner’s insurance. This insurance policy covers your home and its contents against damage and theft. It also provides you, the homeowner, with coverage against personal liability if someone is injured while on your property. The HO-3 policy normally covers damage caused by pets and most natural disasters, but floods and earthquakes will require a separate policy.

One important thing to remember is that your homeowner’s insurance will not cover problems that arise from poor maintenance or general wear and tear. For example, if you neglect repairing your roof and water leaks into your house and produces damage to the drywall, carpet, and subflooring, your homeowner’s insurance policy will most likely not cover the damage. On the other hand, if your roof is damaged by a tornado, your home owners insurance will most likely cover all the damage.

A basic homeowner’s insurance policy may also cover other structures on your property and provide for living expenses in case you are not able to live at home after an incident or natural disaster. The amount of coverage provided for each of these items varies depending on the insurance carrier and the type of policy you purchase.

As far as the contents of your home you will be asked if you want replacement coverage or actual cash value. This can be tricky for some homeowners but remember; actual cash value is the depreciated value of your belonging in your home and the replacement value is the current market value of the items if you had to purchase them new.

Most people don’t want to pay the extra cost to be overinsured but you definitely don’t want to find yourself in a crisis and realize you’re underinsured. When purchasing homeowners insurance a professional insurance agent is highly recommended to walk you through the steps and assess your needs.