In the current economic climate, most families are looking to make cutbacks to reduce their expenses. However, selecting home insurance based on price alone can prove to be insufficient, as a policy with inadequate coverage may leave the homeowner facing a large bill that they must pay themselves.

It is important for homeowners to consider how much insurance coverage they need, and balance this against what they can afford. But how much coverage is enough?

Home insurance can be divided into three groups: dwelling, contents and personal liability coverage. Each can be tailored to create a bespoke homeowner insurance plan.

Dwelling coverage relates to the building itself, providing protection for the structure should it be damaged by certain perils, such as fire or wind. In order to have adequate coverage, the policy payment limit should be set to the value of the home. Should the property need to be rebuilt without this coverage, the homeowner would be required to meet the cost themselves. Note that specific events related to geographical areas, such as earthquakes and floods, are likely to require additional, separate coverage.

Contents cover protects the possessions in the home, so before selecting a policy it is worth considering how much it would cost to replace everything in the house. This is particularly important for those who have a number of high-value items, such as electrical goods or antiques. As a guide, the value of contents cover is typically set at 70% of the dwelling coverage, but this should be tailored according to individual needs.

Personal liability coverage is included in most policies but is an aspect that is frequently overlooked. Should a visitor to the property sustain an injury due to the negligence of the homeowner, liability cover will deal with the financial implications from resultant legal action.

Each aspect of home insurance is as important as the next and should be given careful consideration when choosing policy coverage. Remember that a cheaper insurance policy may represent savings when it comes to monthly expenses, but could represent a gamble with future financial stability. Also note that some state require certain levels of insurance coverage for first time homeowners so coverage issues might be limited, but shopping around for the lowest price is still a smart thing to do.

Sam McCall has been writing web articles for more than three years, covering topics from computing and technology to finance and the environment, as well as blogging and contributing book and game reviews to local magazines.

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