We all hate insurance — until we need it. We pay and pay and pay premiums, and sometimes we feel insurance-poor. But some insurance you can’t afford to be without. Homeowner’s insurance is one of those.

If you own a home, hopefully you have an emergency fund to cover three to six months of expenses. If so, then you should look into raising the deductible on your homeowner’s policy because it lowers the premium. How do you decide if raising the deductible makes sense for you? Examine the extra risk you’re getting ready to take.

Let’s say you’re going from a $250 to a $1,000 deductible. The difference would be $750. So by raising your premium, you risk having to pay $750 more out of pocket if something happens to your home. If raising the premium saves you $30 a year, then it will take you 25 years without a claim to break even. But if you save $250 a year in premiums, you only have to go three years without a claim to break even. This is a good bet. Look at how much extra risk you are taking. Determine whether you are getting enough savings to justify incurring the risk.

Liability on your homeowner’s insurance is one of the best buys in the insurance business. It doesn’t cost much, so you ought to carry $500,000 minimum. Trust me: No one sues for just $250,000. Have at least $500,000 in liability. Then you are transferring the risk, which makes liability a good buy.

Check your homeowner’s policy to make sure you have guaranteed replacement cost insurance. Several years ago, a lot of the major insurance companies did away with guaranteed replacement cost insurance — a policy in which if something happened to your home everything would be replaced no matter what it cost.

The problem? Companies weren’t coming back and raising the premiums even though the cost of the house went up, but they still had to replace the home if something happened to it. Now many companies have put a dollar amount on the policy, saying your coverage is for that amount plus a maximum of 25 percent.

Let’s say you bought a $100,000 home and $100,000 worth of coverage for it. Then a couple years later, the home’s worth grows to $175,000, but you never changed your policy. You only have $125,000 worth of coverage. If something bad happened to your home, you’d be $50,000 in the hole.

Make sure you get replacement cost insurance. Remember, the reason you have homeowner’s insurance is to transfer risk. Make sure your home is totally covered.
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Dave Ramsey’s financial advice appears every week in Quick & Simple. He is the host of the nationally syndicated radio program The Dave Ramsey Show and best-selling author of The Total Money Makeover and Financial Peace Revisited