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Most people who choose home insurance do not know or understand the choices involved with insuring a home.

Basic insurance: If a fire or other catastrophe destroys your home, you get the replacement cost, which is enough to rebuild the home to its original state, if you carry at least 80% of the replacement cost. What you don't get: The market value of the home so that you can go out and buy a similar one. Land value and neighborhood are inherent in market value, yet unrelated to replacement cost.

Carry at least 80% of the home's replacement value. If you don't, the insurance company penalizes you by the percentage you underinsure. Example: You have a $100,000 house and carry only $60,000 on it. That is three quarters of the $80,000 required. If you have $20,000 worth of damage from a fire, you will get only $15,000, or three quarters of your damage. If you were insured for $80,000, you would get full coverage insured.

How to ascertain replacement cost:

Most insurance companies will inspect your home if it is worth more than $100,00.

Your broker has a replacement-cost guide. This determines the cost of the average home by computing the number of rooms and square feet. It is only an educated guess.

If your home was custom built, get an independent appraisal.

Replacement cost versus actual cash value: Replacement cost is only useful when you rebuild your home. If you decide to walk away and buy another house, you will get only the actual cash value. What it is: Replacement value must depreciate. Example: You have a 50-year old house worth $100,00 and $80,000 worth of insurance. You might get only $40,000 if you decide not to build, because depreciation could take away as much as 50% of the payment. Depreciation computed by an insurance company is not related to depreciation tax purposes. Depreciation is rarely in excess of $50% of a home.

Check out whether inflation increases are granted annually, semiannually or quarterly. Problem: If inflation is running 10% and you have a disaster after six months, you may have insufficient increases in protection quarterly. It costs little. Some insurance doesn't charge for it.

Apartment structures: A garage or shed. Coverage 10% of home coverage.

Theft away from home: This covers a suitcase stolen from your locked car, etc. This coverage is limited and optional in some states