Make Sure your Homeowner Insurance Policy Doesn't Bankrupt you

Homeowners and renters and condominium owners often times overlook or make mistakes on two of the most important kinds of insurance coverage. A mistake on either could cost you big bucks, even bankrupt you. They each protect you in case disaster strikes.

The rates you pay for your standard homeowners' insurance policy includes the following essential types of coverage:

1. Additional living expenses (ALE) also known as loss of use.
2. Liability protection.

1. Additional Living Expenses (Or Loss of Use)

This part of your policy covers any additional expenses you may have above and beyond your normal living expenses if you cannot live in your home due to damage caused by insurable perils. This means hotel costs, meals, and other living expenses are covered while your home is being repaired or rebuilt.

Don't underestimate how much additional living expenses can add up to. If your home is extensively damaged, you could be displaced from it for many months, even years (imagine extensive flood or fire damage followed by a lengthly claims process - you get the idea).

The amount available to pay for these expenses is usually equal to 20% of the insurance on your house. If you rent part of your home, the loss of income will be reimbursed. Policies differ company to company. Make sure you know what is covered. This part of your insurance policy is to help you maintain a "normal standard of living"

2. Liability Protection

Liability protection provides personal liability coverage against lawsuits for bodily injuries or property damage that you or other members of the family who live in the home cause others on your property. It also covers any damage or injury your pet may cause. This part of your policy includes no-fault medical coverage so medical expenses are paid with no liability claim filed against you. The cost of defending you in court and court awards are covered, up to the limit of your policy. This coverage covers you, your family members, or your pets anywhere in the world.

Home insurance experts highly recommend that you buy at least $300,000 worth of protection. You can also buy an umbrella or excess liability policy. This kind of policy covers you for slander or libel claims. These policies cost between $200 to $300 for every $1 million of additional coverage.

Your inventory can be documented by photographing each item or by making a video tape. Make sure to store these documents in a very safe place, not in your home. You can download free home inventory software at www.knowyourstuff.com. Better yet, keep your records and digital photos inside a free KeepandShare account. Read about using KeepandShare for home insurance inventory.