• The first mistake is not buying enough insurance. Before you close on your home, your mortgage company will require you to purchase a homeowner's insurance policy in an amount equal to your mortgage. That policy will protect the lender, should your home be destroyed. However, if that were to happen, your lender would be paid for the home, and you'd be left with nothing other than the land, and building from the ground up would come out of your pocket. So, get enough!

• The next mistake people make is failing to upgrade their policy. Appreciation does not apply to insurance coverage. Everything gets more expensive, including rebuilding your home, purchasing new furnishings, and replacing jewelry, artwork, designer clothing, and other expensive items you may have. Also, some companies limit your contents insurance to a percentage of your homeowner's policy. So, if the prices to build go up, or you purchase expensive furnishings for your home, you may need to upgrade your house policy.

• A big mistake you would hate to make is failing to keep an up-to-date list of items. You need to know what you have in your home. Better yet, every year, take a video camera and go through your house and garden recording what's there, including linens and china. Then take the tape, mark it with the date and store it in a safe deposit box located outside your home. That way when your insurance company comes to replace the items in your home, you can show them exactly what you had.

• A common mistake is buying the cheapest insurance you can find. You want to buy it from a reputable company that has an excellent record on paying claims. Having insurance with a company that takes years to process claims, or never pays is worthless.

• Huge mistake: thinking all insurance is replacement cost insurance. If you don't get "replacement cost" or "guaranteed replacement cost" insurance, you might find that your policy will only reimburse you for the depreciated value of your home's contents. If you need to rebuild, you'll want to be certain your policy contains a clause that will cover you for upgrading your home to current building codes and standards.

• With many townhouses and condo owners, a common mistake is confusing a condo or coop building's policy with your personal policy. Condo and co-op properties must hold policies that protect the building or development should something happen to the common areas. It might protect you up to your common walls, but won't include anything inside your unit. So, if this is the case, you would need interior coverage.

• Believing mortgage insurance can replace homeowner's insurance. Mortgage insurance will pay off your mortgage if you die.

• Another common error is not knowing what all is covered, and thinking you're protected in case of a flood. Flood insurance is rarely included in a homeowner's policy. If you need flood insurance, you should ask directly if this is included in your policy, and for how much.

• Next is thinking that the private mortgage insurance (PMI) you are paying each month is homeowner's insurance. Normally, you'll buy title insurance (your policy and the lender's), homeowner's insurance, and, if you put down less than twenty percent on your home, PMI. But don't mistake PMI for homeowner's insurance. PMI covers the lender for the top 20 percent of your loan in case you default on a super-low down payment loan. It won't do anything for you in case your home is flooded or leveled by fire.
Now that you know the common mistakes when it comes to home hazard insurance, you can avoid them and make sure you have the proper coverage, and the coverage you need and want.