Dave Ramsey Says This Is the Biggest Risk You Might Encounter When Getting Homeowners Insurance

Don't fall into one big trap.

There are certain steps you should take as a homeowner to safeguard your property. Those include having functional smoke alarms, installing an alarm system, and securing the right homeowners insurance. The latter won't help you prevent damage -- but it could help ensure you're not left in the lurch financially if damage were to occur.

But there's a big mistake homeowners routinely make in the course of buying insurance -- not getting enough. In fact, financial expert Dave Ramsey insists that not buying enough insurance is one of the riskiest moves you might make.

Is your home adequately insured?

When you own a home, there are numerous things that could go wrong. A criminal could break in, steal valuable belongings, and cause damage. Or, a fire could break out, destroying your home and rendering it uninhabitable.

It's for these reasons you need homeowners insurance in the first place. In fact, homeowners insurance is so important you can't get a mortgage without it.

But it's not enough to just put a policy into place. You'll also need to make sure you have enough coverage.

How to assess your coverage

Your homeowners insurance should be able to do the following:

• Rebuild your home if it gets destroyed completely
• Replace your belongings if they're damaged or stolen
• Cover injuries that occur on your property
• Reimburse you for temporary housing if your home becomes uninhabitable

For the first item, you'll need to figure out your home's replacement cost. That's not necessarily the same as its purchase price, unless you bought a new construction property recently. You can use different online calculators to determine what your replacement costs look like based on factors like square footage and where you live.

Next, you'll need to figure out how much it would cost to replace all of your belongings. To do so, take inventory and do your best to estimate what each item in your home costs. You don't necessarily need to inventory your sock drawer, but be sure to account for things like furniture, electronics, and other more expensive items.

When it comes to covering injuries on your property, those aren't numbers you can run yourself. It's impossible to predict what sort of injury a visitor might sustain, but most homeowners policies offer a minimum of $100,000 in liability coverage for accidents. You may want to increase your liability coverage for added protection.

Finally, you may want to make sure your homeowners policy will cover the cost of temporary housing in case you can't live in your home for a period of time (also known as loss of use coverage). Like liability coverage, this isn't a cost you can calculate, so instead, you'll want to discuss your options with your insurer.

The last thing you want to do as a homeowner is leave yourself underinsured. Take some time to assess your coverage and make sure it's enough. At the same time, pay attention to items your insurance policy won't cover, like floods or earthquakes. You may end up needing to purchase a separate policy to make sure you're covered on all fronts.