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The biggest mistake homeowners make with insurance is using market value for dwelling coverage. Market value includes land, location, school district, and demand — none of which affect what it costs to rebuild your house. Land doesn't burn.

The correct measure is reconstruction cost: square footage × local cost per sqft for materials and labor at current prices. This is typically 65-85% of market value.

Insuring for market value is wasted premium. Insuring for less than reconstruction cost leaves you exposed to a major loss.

When comparing quotes, make sure all 5 coverage components are equivalent:

• dwelling
• personal property
• loss of use
• liability
• medical payments

Also compare deductibles — a quote with a $2,500 deductible will look cheaper than one with $500, but you'll pay more out-of-pocket on a claim. Check whether replacement cost or actual cash value is used for personal property (replacement cost is much better).

Get at least 3 quotes from major insurers; premiums for identical coverage can vary 30%+ between carriers.

Homeowners premiums reflect the cost to rebuild your home and the risk of claims:

• dwelling replacement cost
• location (weather, crime, fire-service access)
• home age and construction
• roof condition
• coverage limits and deductible
• claims history
• (where allowed) credit

Per the Insurance Information Institute, the biggest driver is rebuild cost, not market value. Higher deductibles and safety features (alarms, updated systems) lower premiums.

A standard policy has several parts:

• dwelling (the structure)
• other structures (garage, fence)
• personal property (belongings)
• loss of use (living costs if displaced)
• personal liability (injuries you're responsible for)
• medical payments to others

The Insurance Information Institute notes covered perils typically include fire, wind, theft, and many accidents, but not flood or earthquake. Knowing what's included prevents nasty surprises at claim time.

The most important — and misunderstood — figure is dwelling coverage, which should equal the cost to rebuild your home, not its market or purchase price. Market value includes land and location; rebuild cost reflects materials and labor.

The Insurance Information Institute warns that insuring to market value can leave you underinsured (or overpaying). Aim for replacement-cost coverage, and consider extended or guaranteed replacement cost for rebuild-cost spikes.

Personal property coverage (often 50-70% of dwelling coverage) pays for belongings; choose replacement-cost rather than actual-cash-value settlement to avoid depreciation deductions. High-value items (jewelry, art) may need scheduled endorsements.

Liability coverage protects you if someone is injured on your property or you cause damage — the Insurance Information Institute suggests at least $300,000-$500,000, or an umbrella policy for more.

A home inventory speeds claims.

Home insurance deductibles can be a flat dollar amount or, for wind/hail or hurricanes in some regions, a percentage of the dwelling coverage. Raising the deductible lowers the premium but increases out-of-pocket cost per claim.

The Insurance Information Institute advises choosing a deductible you can afford and reserving small claims for major losses, since frequent small claims can raise rates or lead to non-renewal.

Standard homeowners policies exclude flood and earthquake damage. Flood coverage comes separately through FEMA's National Flood Insurance Program (NFIP) or private insurers; earthquake coverage is a separate policy or endorsement.

The Insurance Information Institute stresses that many homeowners wrongly assume they're covered until a disaster proves otherwise. If you're in a flood or seismic zone, buy the appropriate separate coverage.

Coverage should:

• fully rebuild your home (replacement cost dwelling coverage)
• replace your belongings (personal property)
• cover temporary living costs
• protect against liability

The Insurance Information Institute recommends updating coverage after renovations or rising construction costs, since underinsurance is common. Review limits annually and after major purchases, and consider an umbrella policy if your assets exceed your liability limits.

Ways to save include:

• raising your deductible
• bundling home and auto
• improving home security and fire protection
• updating roof and systems
• maintaining good credit where allowed
• avoiding small claims
• comparing quotes at renewal

The Insurance Information Institute notes discounts for new/renovated homes and protective devices. As with auto, re-shopping periodically and asking about every discount deliver the biggest savings.

Frequent mistakes are:

• insuring to market value instead of rebuild cost (underinsurance)
• assuming flood or earthquake is covered
• choosing actual-cash-value on contents
• setting liability too low
• not updating coverage after renovations
• filing many small claims

Insure to replacement cost, buy separate flood/quake coverage if at risk, opt for replacement-cost contents, carry adequate liability, and keep a current home inventory.