Home/Renters Insurance Center
How Much Homeowner Insurance Coverage Do I Need?
Article 2 of 8 in Homeowners Insurance Coverage Basics
You need to know how much homeowners insurance coverage to purchase before you start shopping for a policy. How much home insurance coverage to buy depends on the value of your house and your personal belongings. Home insurance coverage needs to be able to replace your property in the event of a total loss, so you need to calculate the value of what you want to protect before you know how much home insurance to purchase.
TIP: Home much home insurance to purchase depends largely on your individual situation. If you have any specific questions about your home insurance needs, click here to ask an experienced insurance professional for assistance.
Home Insurance Coverage for Your House
The main focus of home insurance coverage is securing proper coverage to replace the home itself. Home insurance agents have a tool that calculates the replacement value of your home that takes into consideration all the features of your home (the square footage of your home, the number of bedrooms, carpet, hardwood floors, custom kitchen, any ceramic tile, etc) and calculates a replacement cost based on the current value of the house. When you are shopping for home insurance coverage, make sure you get a home insurance quote that includes anything you feel would increase the value of your home such as crown molding, a fireplace, or marble or ceramic tile in your bathroom. All the added features to your home will help determine the overall value that should be included in your home insurance coverage, so don't leave anything out!
Home Insurance Coverage and Guaranteed Replacement Cost
Guaranteed replacement cost of your home is a feature of your home insurance policy coverage that states the insurance company will pay to fully replace or repair the home to the value it was at the time it was damaged or destroyed. Many insurance companies will require you to insure the home for the entire replacement cost amount in order to get their guaranteed replacement cost coverage. What this mean is that if they use a cost estimation tool and determine that your home would cost $250,000 to replace or rebuild in the event of a total loss, you would be required to insure it for that amount in order to get their guaranteed replacement cost coverage.
TIP: This is an important part of your home insurance coverage! Make sure that you ask your agent for the terms of the replacement cost coverage. This type of home insurance coverage may cost a little more, but the savings do not outweigh the risk of total replacement of your home in the event of a total loss.
Contents or Personal Property Coverage
Personal property covered by home contents insurance can be best described as everything in your home that is not nailed down. This would mean it is not affixed to the home itself. Usually most insurance companies calculate how much they will pay for personal property to be 50% to 70% of your overall coverage. Therefore, if the replacement cost estimation of your home is $250,000, the personal property coverage under your policy would be $125,000 to $175,000 depending on your coverage. While this may seem like a lot, you would be surprised how quickly your potential losses grow when you calculate the value of every single item in your home.
How Much Home Insurance Coverage You Need to Buy
To some degree, you don't have a choice about how much home insurance coverage to purchase. There are two parties who can determine that: your mortgage lender and your insurance company.
Lenders will ask you to carry home insurance coverage as security for their investment. Your mortgage requires home insurance coverage pay for at least 80% of your home's value, or up to 100% of the amount of the mortgage. You will need to buy home insurance to cover the lenders requirements.
TIP: The destruction of your home does not release you from a mortgage! You may as well get the home insurance coverage you need to replace your home so you can still live on property you pay mortgage for.
The insurance company wants the home insurance coverage to reflect the homes full replacement cost because they absorb the risk of loss and want your home insurance premiums to pay for the value that is at stake. As a result, most homeowners insurance contracts include a clause that says if the home is insured for less than 80% of the replacement cost, the policyholder will be penalized with a reduced payment for the covered loss.
- Example of Reduced Payment: Consider a homeowner who has an older home that is insured for $60,000. Due to appreciation, the home is now actually worth $100,000 -- which means the insurance company would today require the homeowner to carry at least $80,000 of homeowners insurance coverage. Since the homeowner carried only $60,000 (60% of the home value), the insurance company may only provide 60% of the loss. So a home insurance claim for $20,000 may result in payment of only $12,000.
Homeowners Insurance Coverage and Your Liability to Others
Your homeowners insurance coverage protects you in case you are found legally responsible for injury or damage suffered on your property. Although your homeowners liability coverage can cover medical bills, it is primarily in play if you are sued by the injured party. Your liability coverage can protect you from lawsuits arising from a number of situations from your dog biting someone, to someone falling and injuring themselves on your property or in your home. This is an important part of your home insurance coverage, and should be considered when you want to know how much home insurance to buy. Look at the liability section of your homeowners insurance quotes, and make sure you select a policy that gives you enough liability coverage to protect all your assets that can be targeted in a lawsuit.
How much home insurance you need depends on the value of your home and items and what level of risk you are comfortable with. Determine how much home insurance coverage you need and start shopping for the best home insurance to meet your needs. When you are ready to start shopping, click here and get a free online home insurance quote today!