MOSES LAKE — For a lot of people, their home is the most valuable thing they’ll ever own. And when you have something valuable, naturally, you want to protect it. But how much homeowners insurance do you need?

There’s a common misconception that homeowners insurance is based on the market value of the home. That’s not how it works, say the experts. Rather, it’s based on what it would cost to rebuild or replace what’s damaged.

“When it comes to the value of the home, I do a replacement cost evaluation based on construction costs in our area,” said Gary Morgan, agency principal at Morgan Insurance in Moses Lake. “By taking the home features, the square footage, that puts us real close to what it would cost to build a new home with that square footage and those features for the customer. Sometimes that can vary quite drastically from what an appraised value would be or an actual cash value on the home.”

“We get that question all the time: ‘Well, I can sell my house for $800,000. Why is it only $200,000 of insurance?’” said Jessica Cox, insurance agent with Country Financial. “Because we can rebuild it for that, and you only want to pay for what we can rebuild it for. I mean, I could put you at $800,000, but then you're overpaying for an amount of insurance you'd never get, because at the time of claim they're gonna go and do their own valuation before they pay out on the claim.”

Additionally, if the home isn’t completely destroyed, the insurance company only pays out the amount necessary to repair the damage, Cox said, which is an important distinction that clients don’t always understand.

“Let’s say that building has $600,000 of insurance, but the damage only is going to cost $200,000,” she said. “You're gonna get the $200,000 of insurance, either the rebuild or the cash.”

Of course, the fact that the insurance isn’t directly tied to the market value of the home doesn’t mean that insurance needs don’t change as the value increases. It’s a good idea, Morgan said, to make periodic checks to make sure a home has the insurance it needs.

Companies typically have an automatic inflation increase that they will up each year,” he said. “And generally those numbers are based on an inflation index. But there are times when a company could be over-insuring a property and we will do a new evaluation for the customer. That sometimes can bring that coverage back down a ways if the automatic increases have gone too far.”

Homeowners also should make sure that any improvements they make to the property are included in the insurance. An insurer can’t cover what they don’t know about, Cox said.

“I always advise, if you put $5,000 of work into your house, whether that's upgrading carpet or flooring or your bathroom is upgraded, above the builder's grade status, you need to call me so that we can put that into the system, recalculate your insurance and make sure we're keeping up with the upgrades that you've put into your house,” she said. “You don't want to lose out on money because you upgraded your house, but your insurance is now low. And if you had a complete loss, you're now underinsured. You're just wasting money at that point.”

Another common misconception, Cox said, is that insurance covers everything that could go wrong with a home. Damage caused by homeowners not maintaining the home isn’t the same as damages caused by a fire or a flood.

“The everyday person thinks, 'Well, my shingles flew off, I'm paying insurance, it's going to be covered,’” she said. “Well, that's not always true. It's what caused that damage to happen. So we'll get bathroom claims, where they're doing routine maintenance … And then they think that because they because they paid all this insurance for all these years that it should automatically be covered.”

Liability is another important aspect of homeowners insurance, both Morgan and Cox said. It’s very easy to find yourself in serious financial hot water if someone is hurt on your property.

“A person's liability limits generally are inexpensive, but very important,” Morgan said. “You know, if there is a slip and fall or some type of injury on the home premises, the liability for the homeowner can be significant. If they don't have adequate coverage for that injury, or that incident at home, then their assets can be at risk.”

“If you don't have enough liability insurance, then where's that claim gonna get paid out?” Cox said. “It's going to be personal, out of your pocket, or they can start garnishing your home and your assets and what you have. So we always say if you have assets to protect, protect them and put an umbrella over you.”

Another thing she warns clients about, Cox said, should be a no-brainer but all too often isn’t: Pay your bill.

“Seriously,” she said. “I've actually had a claim where the gentleman didn't pay his (premium). It was on personal property, which is still a homeowner's policy. He didn't pay his $10-a-month policy, and he lost $30,000 of personal property and a firearm. He was two days late on his bill. And because we could backtrack and show that he wasn't on time with that payment, the claim was denied.”

Along with that, Morgan said, clients shouldn’t automatically go for their cheapest options.

“Oftentimes they're shopping for the lowest rate,” he said. “And the lowest rate quite often is not their best coverage. They need to be looking at replacement cost for that home, so if there is a bad fire, they will have enough coverage to rebuild their structure, they'll have enough coverage to cover their rent at another location while the home has been rebuilt and enough coverage for the contents in the home that they lost in the fire.”

“We try to keep (clients) at a happy medium,” he added. “We don't want to be under-insured and we don't want to be over-insured for their property.”

Joel Martin welcomes tips for Homes stories via email at [email protected].