Home Insurance 101: What You Need to Know About Coverage and Saving on Your Premium

VIDEO: Mellody Hobson identifies things to look for in your homeowners insurance policy

This is hurricane season, and homeowners along the East Coast batten down every time a storm becomes a potential threat to their homes.

Last week, a natural gas line explosion in San Bruno, Calif., killed at least seven people and injured at least 60. Investigators still haven't arrived at a final death toll.

The blast incinerated the San Francisco suburban neighborhood, leveling 40 homes. Images of the raging inferno have dominated newscasts and newspaper reports.

The affected families are likely turning to their homeowners insurance policies to get back on their feet.

Mellody Hobson, "GMA" personal finance expert and president of Ariel Investments, appeared on "Good Morning America" today to tell you what you should know about your homeowners insurance coverage before you have an emergency.

What You Should Know

Q: What's the number one piece of advice you would give to homeowners about their home insurance policies?

A: Hobson said the most important thing that people should know about their policy is exactly what it covers, noting that the worst time to learn exactly what's covered is after your home is damaged.

In a recent National Association of Insurance Commissioners survey, 60 percent of respondents couldn't answer basic questions about their coverage.

When homeowners are deciding what needs to be covered, they should think about the value of their home and belongings, plus the cost of living expenses, should something happen.

Homeowners should ask their agents about what is limited or excluded from their policies. For example, some items – such as jewelry – may require a separate rider at an additional premium.

Q: For those families whose homes were destroyed by the San Bruno pipe explosion, would their homes be covered under their homeowners policies?

A: Yes. Most homeowners insurance policies cover fire, theft, wind damage and explosion. Damage from floods, landslides and earthquakes are generally not covered and therefore require separate policies.

Hobson encouraged people who live in natural disaster-prone areas to take out a separate policy for natural disasters.

Click HERE to visit the National Flood Program.

Q: How can I tell if I have enough coverage?

A: Get an appraisal. That's the best way to determine your home's replacement cost.

Hobson suggested that homeowners insure their homes for 100 percent of the replacement cost, and urged that they look for what's called guaranteed, or replacement, value coverage.

This may cost a little more, but it will ensure that the cost of your home is replaced even if it exceeds the amount of coverage you have purchased. That coverage usually covers 120 percent of the value, she said.

For example, if you have a policy that's worth $200,000 and you have extended replacement value coverage, your house will be covered for up to $240,000, she added.

A good way to estimate the replacement cost of your home is by having a builder in your area appraise the value. An insurance agent also could give you an estimated value. The higher the level of coverage, the higher the premium.

Q: Are my personal belongings – my furniture, appliances and clothing – also covered by my homeowners policy?

A: To an extent. Most policies only cover your home's contents for about half the insured value of your house, Hobson said.

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