Homeowners insurance isn't mandated, unlike car insurance; however, depending on your lender, you may be required to keep homeowners insurance. Keep in mind, your home is most likely your largest investment and by insuring your home, you are protecting your investment.
Depending on the exact policy coverage you choose, a homeowners policy covers personal liability, medical payments to others, and accidental direct physical loss to structures and personal property.
State laws may dictate how losses are to be figured, which means the same insurance company may use one method in one state and a different method in another. Common methods are:
If you prefer replacement or extended replacement coverage, this can be added to a policy.
Liability may cover bodily injury and property damage to others due to your negligence.
Replacement cost value should not be confused with market cost value. Market cost value is the figure assigned to your home if you were selling your home. Replacement cost value is how much it would take to rebuild your home, at today's costs. These two figures can be drastically different from each other.