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Article 2 of 2 in How Much Coverage to Buy |
Figuring out how much homeowners’ insurance you need |
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Generally, you need enough insurance to cover the following:
100% of the replacement cost of your house. Most insurers suggest you insure your home for 100% of its replacement value—enough insurance to cover the cost of rebuilding your house, excluding the land. This is not the amount you paid for the house, because the present cost of rebuilding it may be more (or even less) than you paid. It is not the market value of your house, i.e. how much you could sell it for, which may depend upon its area or location. It is simply the cost of rebuilding your house at current construction costs.
Whether you purchase 100% or 80% replacement cost coverage, you’ll only collect up to the total amount of your coverage. The more limited your coverage, the lower your premium --but if you have a loss, your recovery may be less. If you insure your home for $150,000, that’s how much you will receive in the case of a total loss, even if the true replacement cost for your home is $250,000. Keep abreast of the replacement cost of your home in terms of inflationary values of material and of improvements you’ve made, and increase your coverage accordingly.
The contents of your house/personal property coverage. This is mostly furniture, but also jewelry (up to a certain value), electronic equipment, furs, paintings, etc. Most homeowner’s policies consider the cost of your contents to be approximately 50% of the amount of insurance you have on the house itself. If you think this is less than enough or too much, you might want to do an inventory of your furniture and personal possessions, listing all the furniture and items you want covered (it’s even better to also take pictures of the contents).
The cost of living elsewhere. If your home is damaged, you may need to live elsewhere while it is being repaired. Coverage should cover meals, hotel bills, and other living expenses incurred while you’re out of your home.
Your liability to others. This part of the policy covers you in case someone is hurt in your house or on your property, or if something in or around your house causes property damage to another house. It covers legal bills if you are hauled into court for any of these things.
For more help on how much homeowners insurance coverage to buy, go to the Free Advice Homeowners Insurance Center. For information about insurance law, check out the Free Advice Insurance Law FAQs. |
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