How Much Homeowners Insurance Do You Need?
Whether you’re a first-time homeowner or a complete veteran, the subject of homeowners insurance can still feel overwhelming. There are many factors to consider when deciding on an insurance policy, and one of the most important is determining exactly how much coverage you need.
Read further for our concise guide. You may end up saving some money, your important belongings, or both!
We can rebuild
The first consideration to make when purchasing an insurance policy is to insure your home for the cost to rebuild, should a catastrophe occur. Don’t confuse that figure with your home’s sale price or appraisal value, though. It could be higher or lower, depending on variables such as the home’s construction materials and age. Contact a local homebuilders’ association to learn the average cost of rebuilding per square foot. This can serve as a baseline for the value of your policy, and give you leverage when negotiating with your insurance company.
Don't be longing for your belongings
What good is a freshly rebuilt house with nothing in it? No good at all. That’s why you must be careful when choosing replacement insurance for the items in your home. Most insurance policies automatically calculate the replacement value of your possessions as a fraction of the value of the policy on your home’s structure.
To make sure you’re not overpaying or under-insuring your precious belongings, take a thorough inventory of everything you own that you’d want to replace should the unthinkable happen.
Keep your inventory of important belongings up to date and update your insurance policy annually.
The fine print
As a homeowner, it behooves you to understand the various levels of coverage and additional policies that are available to you. These usually come with some unintuitive insurance industry jargon, so take notes.
In addition to cash value vs. replacement value types of policies, there is another called “extended replacement.” This will insure your home and/or belongings for an amount over the set limit. Extended replacement accounts for unexpected higher costs of building or replacement, especially in times of high demand and fluctuating prices after a disaster.
Other terms to learn about related to extended coverage are floaters and endorsements (for valuable belongings beyond what is covered for replacement value), additional living expenses (such as the cost of a hotel while your home is rebuilt), and umbrella policies (additional liability insurance beyond the limits of your policy).
The bottom line when buying homeowners insurance is to know how much your home and belongings cost, how much they are worth at any given moment, and how much they would cost to replace. If you are diligent with these figures, everything else should fall into place.
Sources: www.iii.org; www.insurance.freeadvice.com
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