There are more insurance policies written to protect our homes and possessions than any other type of coverage. For all we are a nation of drivers, we all need somewhere to live. When it comes to protecting the place and all the stuff we've acquired over the years, we're all tempted by some level of protection. Many of us take advantage of the discounts to buy both auto and home cover from the same company. Yet, for all their popularity, the home-protection policies are the most misunderstood. We seem to have talked ourselves into believing the insurance industry runs as a charity to help us out if we get into trouble. If only this were true. In reality, if you pick up a magnifying glass and struggle through the small print, you'll find so many exclusions and limitations, you'll wonder why you bought the policy in the first place. So here are two of the more common myths explained. If you learn the lessons now, it will save you the heartache later.

What exactly happens when you lose the use of your home? The wishful thinking has the insurer writing a check for us to stay in a nearby hotel while the repair and renovation work is done. Perhaps you speculatively eye the better quality hotels as you drive around the neighborhood and wonder what they're like inside. Well, for the majority of policies, you can forget this. The insurer covers the cost of repairs. If your living costs rise, that's your problem. Put another way, it may cost you more to eat all your meals in diners and restaurants while putting up at the local motel, but that's not a repair cost. Some insurers will add in a daily amount to cover some of the additional costs, but the premium rate will rise quite steeply and the time is always limited to a few weeks. If you have this cover written into your policy, remember to keep all the receipts. Even with the cover, many companies only pay when you prove you have already spent the money.

Then when it comes to contents, there's another rule to learn. No one can make a profit out of their insurance policy. Yes, you are buying cover to replace what has been lost, but look at the words here. If you lose a 3-year old PC in a fire, that's the value you can reclaim, i.e. the price of buying another 3-year old PC to replace the one you have lost. No insurance company will agree to buy new for old because that would leave you better off (or it would give you a motive to have a fire). You can buy this additional cover but, again, the premium rates are expensive. Think very carefully before you agree this premium uplift. Most people accept fair wear and tear on the contents of their home.

Home insurance is a very simple idea. You buy enough cover to replace what you have lost. As a structure, you rebuild to the same basic architectural design which may mean using modern materials and so give you a better home with a lower fire risk. But this is the only way your home insurance will give you new for old.