Knowing the ins and outs of insurance is the first step toward purchasing a policy for your home.

When considering homeowner’s insurance, property location determines many aspects of your homeowner’s insurance premium. Is your house in a flash flood zone? What is the fire protection class? How far away are fire hydrants and fire stations? Do your neighbors maintain their properties to prevent hazards?

If you are financing your home, your lender will require you to purchase homeowner’s insurance to protect their investment. A standard homeowner’s policy covers the structure of your home, personal belongings and living expenses in the event you are unable to live in your home because of a fire or other disaster.

HO-3 Policy

The typical homeowner’s insurance policy is known as the HO-3 and, according to the National Association of Insurance, is owned by the majority of households in the U.S. The HO-3 provides financial protection for most disasters (known as perils in insurance industry parlance).

There are 17 perils covered in the standard insurance policy, including everything from theft and vandalism to fire and lighting to windstorms, riot and civil commotion. (We haven’t had a lot of civil commotion in Albuquerque lately, but it’s best to be prepared.) Notable exceptions to the standard HO-3 perils are damage caused by floods, earthquakes or poor maintenance. Additional insurance to cover these perils may be purchased separately, but is sometimes a challenge to obtain.

Expensive items like jewelry, antiques or fine art are covered up to $2,500 but if you want full coverage, you must take out a special policy based on a recent appraisal or purchase receipts.

When You're on Vacation

Your homeowner’s policy will also protect your personal property if you are away from home. If your camera is stolen while on vacation in Paris, your policy will replace it, as long as you have specified replacement cost as a provision in your policy and carry appropriate levels of coverage.

What if your neighbor slips on the front porch and breaks a leg? Homeowner’s insurance provides liability coverage to help with legal and medical costs if an accident for which you are found negligent occurs on your property.

Be a Smart Buyer

Be a smart buyer — do your research. Purchase insurance with the end result in mind. Ask yourself; how does this company settle claims? Where is the claims department? Look up claims settlement history. Don’t just settle for the company your lender recommends.

Before you sign a policy, check out the New Mexico Public Regulations Commission at www.nmprc.state.nm.us. This website provides information on complaints against insurance companies. Or take a look at the National Association of Insurance Commissioners at www.naic.org. You may also ask about the AM Best rating at www.ambest.com for insurance company information and ratings.

When researching a homeowner’s insurance policy, determine your coverage needs, the premium you can afford and the deductible you can absorb in the event of a claim.

Just like auto insurance, homeowner’s insurance comes with options that affect the price you pay. Most insurance policies recommend coverage set at least the amount of the total mortgage. However, depending on your personal requirements, such as (more)