Most home insurance claims are for repairs, which are easy enough to estimate. The parts and labor to install a new sliding glass door and tile floor after a tree falls into your home, for instance, have a precise price tag attached.

The total value of the home is only relevant if a home is destroyed in a fire or similar event, and therefore rendered completely uninhabitable. In this case, your insurer is focused on compensating you for the loss, so that you should be able to rebuild or buy a home of similar quality to your own.

You may suspect that this would be as simple as looking at sale prices for similar homes in your area. But, just as with a car's value, your insurer is going to estimate the value based on a formula involving several determining factors.

Some of these factors might include the following:

• The quality of building materials
• The condition of fireplaces
• The quality of the home's construction
• The condition of materials and age of the roof or foundation
• Any upgrades, additions or remodeling conducted on the home
• The neighborhood value
• The age of the home

Unfortunately, it is not at all uncommon for the insurer's estimate to not quite cover your needs. One area where policyholders tend to see a gap is in safety codes, laws and regulations pertaining to the building of new homes. Newer homes — even those of identical style, size and quality — may be more expensive to build, simply because of the safety features required of them. Luckily, you can cover this gap with a law-and-ordinance rider designed to make up the difference.

As with any form of insurance, you always have the option of buying the very bare minimum, but it might not provide you with as much protection as you think it does. Any additional protection that you can get to ensure that you won't be left with a gap between your insurance payout and your financial needs is going to be a smart investment.

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