For many people, their home is their most valuable asset. To protect this asset, purchasing a homeowners insurance policy is critical. This coverage is designed to pay for repairs and replacements, as well as protect long-term savings and investments. But you may have been wondering how much homeowners insurance is enough and where to begin.
An independent insurance agent can help you evaluate the proper homeowners insurance coverage amount for your unique property. They'll help you get equipped with all the protection you need in every category. But first, here's a closer look at how much home insurance you really need.
How Much Home Insurance Do I Need?
Like many first-time homebuyers, you may have been asking, "How much coverage do I need for homeowners insurance?" It's critical to consider all aspects of this coverage and how they'll apply to your home's structure, personal property, liability risk, and more. To determine how much home insurance you really need, it's helpful to break the policy down category by category.
How Much Dwelling Coverage Do I Need?
The dwelling is also referred to as your home's structure, and includes elements like the foundation, walls, roofs, floors, doors, and windows. You're likely wondering, "How much dwelling coverage should I have for my home?" You'll first need to consider a few factors about your home, including the following:
- Your home's age, condition, and square footage
- Your roof's age and condition
- Your home's construction materials
These factors can all influence the cost of rebuilding your home if you suffered a total loss, such as a fire, that destroyed your home. You need enough dwelling coverage to pay for the full replacement cost value of your home if it must be completely rebuilt.
Many homeowners insurance policies come with $300,000 in dwelling protection, but you can get more or less coverage depending on the value of your unique property.
Actual cash value vs. replacement cost coverage
Look for a homeowners insurance policy that includes replacement cost coverage in its dwelling category. This means your policy would cover the cost of rebuilding your home completely at today's rates.
Actual cash value (ACV) coverage, on the other hand, factors in depreciation. This coverage option may not pay the full amount required to rebuild your home with updated materials. While many home insurance policies include replacement cost coverage for the dwelling, work with an independent insurance agent to make sure you get set up with one.
How Much Personal Property Insurance Do I Need?
The personal property coverage in homeowners insurance can pay to repair or replace your home's contents. Your personal belongings include furniture, clothing, electronics, silverware, and much more. Again, you'll want to assess the full value of all your personal property and what it would cost to replace it should you suffer a total loss after a major disaster like a fire.
Some home insurance policies include replacement cost coverage for contents, but not all of them do. Having replacement cost coverage for your personal property can allow you to receive repairs or replacements that don't factor in an item's depreciated value.
Many home insurance policies limit your personal property coverage to 50%-70% of your dwelling coverage limit. This means that if your home insurance policy's dwelling coverage is capped at $300,000, your contents coverage would be limited to between $150,000 and $210,000.
Additional coverage for valuable items
If you have valuable personal property, such as jewelry, furs, artwork, firearms, expensive electronics, etc., you may need additional contents coverage for it. You might be required to specifically list or "schedule" these items on your insurance policy, or to get additional coverage endorsements or riders to insure your valuables. An independent insurance agent can help you get all the personal property coverage you need.
How Much Loss of Use Coverage Do I Need?
Additional living expenses, also known as loss of use coverage homeowners insurance, is designed to provide compensation for extra costs that arise when your home is temporarily uninhabitable due to a covered disaster. For example, a severe fire may displace you from your residence for a week while you await repairs to be completed.
During this time, you may have to stay in a hotel room and have a longer commute to work. You might also need to use laundry services or order takeout meals, since you can't cook at home. Your loss of use coverage can pay for all of these expenses.
Many home insurance policies include loss of use coverage, which is typically capped at about 10%-20% of your home's dwelling coverage. If you have a policy with a $200,000 dwelling coverage limit, your loss of use coverage would be somewhere between $20,000-$40,000. An independent insurance agent can help you choose an appropriate coverage limit in your policy's additional living expenses category.
How Much Liability Coverage Do I Need?
The personal liability coverage included in standard home insurance policies can reimburse you for expenses related to third-party lawsuits. Claims can be related to personal property damage or bodily injuries to third parties, whether at your premises or away from home. Many standard home insurance policies cap liability coverage somewhere between $100,000 and $500,000.
To determine how much liability coverage you need in your home insurance policy, consider your unique risk factors. The greater your chances of injuring a third party or damaging their property or facing a lawsuit, the more coverage you'll need.
You might need to increase your liability coverage if any of the following apply to you:
- You have an outdoor swimming pool
- You regularly host events at your home
- You often invite other families' children over to your home
- You have a dog
- You have a trampoline
- You have home features that are outdated or dangerous for guests
Umbrella insurance for increased liability protection
If any of the above factors apply to you, or you want extra liability protection for any other reason, you might want to consider adding umbrella insurance. These policies are also called excess liability coverage, and they work by adding more liability insurance to your existing policy.
Umbrella insurance is sold in increments of $1 million, and these policies are often highly affordable given the amount of extra coverage they provide. If you buy a $1 million umbrella insurance policy and your homeowners insurance includes $300,000 of liability coverage already, you'd have increased your protection to $1.3 million in liability coverage.
Having umbrella insurance can help you pay the full cost of a hefty lawsuit. It can also help fully reimburse you for a third party's medical expenses or property repairs after an incident.
Without this coverage, if you have insufficient liability protection, you could be stuck paying out of pocket for huge expenses. An independent insurance agent can help ensure you have all the liability coverage you need, and advise on whether umbrella insurance is appropriate.
Additional Home Insurance Options to Consider
You might not be completely protected by just the standard coverage options included in most home insurance policies. In many cases, you may want to consider adding different types of coverage to your policy, such as the following:
- Flood insurance: Home insurance doesn't include coverage for flood damage caused by natural water sources, such as heavy rainfall, tsunamis, etc. You'll need a separate flood insurance policy to protect your home against natural flood damage, especially if you live in a flood zone.
- Earthquake insurance: Home insurance doesn't include coverage for earthquake damage, either. If you live in an area prone to these natural disasters, you'll need a separate earthquake insurance policy.
- Sewer backup coverage: Many home insurance policies don't include coverage for damage or destruction caused by water and sewer backups. However, in many cases, you can add this coverage to your policy as an endorsement.
Your independent insurance agent can help recommend any additional types of home insurance that you might want to add to your policy to create a complete picture of protection.
The Benefits of Working With an Independent Insurance Agent
Independent insurance agents have access to multiple insurance companies, ultimately finding you the best home insurance coverage, accessibility, and competitive pricing while working for you. Your agent can assess your unique coverage needs and help you find a policy that includes all the protection required to get the job done right. And down the road, your agent will still be there to help you file home insurance claims or update your coverage when necessary.
Sources
https://www.bankrate.com/insurance/homeowners-insurance/how-much-homeowners-insurance/https://
https://www.iii.org/article/how-much-homeowners-insurance-do-you-need
