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You've been searching for the perfect house for months. Finally,you find the one. After your offer is acceptedand a small mountain of paperwork is signed, it's yours. What areyou going to do next?

If you're smart, before you pack a single box, you will makesure your home insurance has you covered for whatever lifemight have in store. While your mortgage lender likely requires youto carry some level of home insurance, don't assume that amountwill protect you from financial disaster.

Donald Griffin, vice president of personal lines for theProperty Casualty InsurersAssociation of America (PCIAA), offers the following fivetips.

(Photo: Shutterstock)

Tip No. 1: Insure for yourhome's replacement cost

Here's one of the most common mistakes homeowners make:Confusing a house's market value with its replacement cost. Yourhome insurance coverage should cover the cost ofrebuilding your house if it is destroyed. “The bestindication [for coverage] is the cost to build a new home,” Griffinadvises. “With an existing home, look at the replacement costrather than the market value.” This is often less than what youpaid for your home; if you're insuring your house for its marketvalue, you may be overinsuring it.

On the other hand, if you bought a foreclosed home, the priceyou paid may not accurately reflect construction costs to rebuildit.

To determine the replacement cost, most home insurance companiesuse software that allows them to enter your home's features andcalculate the cost of replacement. In addition, most policiesinclude coverage for up to 125% of the replacement cost.

While it may be tempting to use this buffer as a reason topurchase less coverage, the reduced cost may not be worth the riskyou take in having inadequate coverage. Griffin says it can be lessexpensive to rebuild a home than to do extensive remodeling, andmany home insurance claims are for only partial damage to ahome.

Tip No. 2: Don't skimp on liabilityinsurance

There's the old joke that trial lawyers have never seen alawsuit they didn't like. That may be an overstatement, but thethreat of legal action is a real concern for everyone—especially ifyou have assets like a house, savings and investments. If you'resued for an incident covered under your home insurance (like aslip-and-fall injury on your front steps), liability insurancecovers not only the settlement but also your legal fees (up to yourliability limit).

According to Griffin, many liability insurance policies willcover you even if an incident happens away from your home. He alsorecommends buying an excess liability or an umbrella policy thatoffers coverage of $1 million beyond what is already included inyour home insurance and car insurance policies. These policies arerelatively inexpensive, often costing $200 to $300 per year.

“You don't want to lose your home because you failed to buy aninsurance policy,” says Griffin.

(Photo: Shutterstock)

Tip No. 3: Protect your personal property

Be sure to review the coverage amount for your personalproperty. Most policies include coverage equal to 50% to 75% of thereplacement value of your house.

In addition, you may need a separate endorsement, or rider, forsome valuables. For example, coin collections, stamp collections,jewelry, furs, fine art, cameras and other expensive belongings maybe subject to limited coverage under the personal propertyprovisions of your plan. When requesting a home insurance quote,ask whether these items need to be listed under a separateendorsement to ensure they are properly covered.

(Photo: Shutterstock)

Tip No. 4: Don't overlook coverage for additional livingexpenses

If your house is destroyed or otherwise unlivable while repairsare being made, you'll be glad you can tap into your “additionalliving expenses” (ALE) coverage. This type of coverage won't payyour mortgage, but it will cover the cost of an apartment or hotel.If you are displaced from your house, you can make a claim for thiscoverage by submitting paperwork documenting your livingexpenses.

The ALE standard for most homeowner insurance policies is abenefit worth 20% of your home's replacement value. When you get ahome insurance quote, find out if the policy specifies anylimitations or exclusions on ALE.

(Photo: Shutterstock)

Tip No. 5: Examinewhat's not covered

Finally, read the exclusions section of your home insurancepolicy. Understanding what's not going to becovered is just as important as knowing what is—before you everhave to make a claim.

In the end, Griffin reminds new homeowners that it is importantto choose a financially stable insurance company. Financialstrength ratings are available from A.M. Best, for example.

“Remember,” he says, “you are buying a promise from thatinsurance company that they will be around when you need to make aclaim.”

And what about customer satisfaction? J.D. Power and Associatesreleases annual customer satisfaction rankings of home insurancecompanies. And state insurance departments generally post theirannual “consumer complaint” reports on their websites.

Read more:

Homeowner, condo and renters insurance: 5 things toknow

Umbrella policies: A guide for homeowners

Do homeowners file fewer auto insuranceclaims?