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How Much Insurance You Need
Basically, you need enough insurance to protect your
house (not including the cost of your land) and possessions.
Here are some key factors to keep in mind when determining
how much insurance you need.
Insure your home for what it would cost to
rebuild it, not your mortgage amount or market value.
Your insurance agent can work with you to determine
your home’s replacement value. One way for you
to get a quick estimate is to multiply the total square
footage of your home by local building costs per square
foot. But keep in mind, things like type of construction,
improvements, special custom features, etc., aren’t
reflected in a generic cost-per-square-foot estimate.
You can also have an independent appraisal done.
Don’t underestimate the value of your
belongings. Generally, homeowners policies
give you coverage for your belongings that is equal
to anywhere from 25% to 75% of the amount of insurance
you have on your home. To decide what’s right
for you, do a video or written inventory of everything
you own that includes what it would cost to replace
it. (See Doing
A Home Inventory.) This is not only helpful in
determining what your belongings are worth; it’s
invaluable if you have a claim. Consider insuring
belongings on a replacement cost coverage basis. While
it generally costs a little more, if you have a claim
you’ll be reimbursed for what it costs to replace
the item with no deduction for depreciation.
Make sure you have adequate liability insurance.
If someone is injured on your property and you’re
not properly insured, it could cost you hundreds of
thousands of dollars. Basic homeowners policies give
you $100,000 worth of liability insurance. Increasing
liability coverage to $300,000 or $500,000 is generally
worth the relatively small increase in cost.
Look for a policy that covers the cost of
building-code compliance. If your home needs
to be repaired or replaced, the cost of improvements
needed to comply with current
building codes may not be covered by a standard homeowners
policy.
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