If you own a house, you may be wondering how much home insurance you really need. After all, the more coverage you have, the higher the premiums, and you probably want to avoid paying more than necessary. Yet, if you don’t have enough cover, could you afford to rebuild your home and replace your belongings in the event of a claim?
The good news is that you can adjust your home insurance policy to make sure you have the right type and amount of coverage.
Key points to remember
- Home insurance covers loss and damage to your home and property and protects your possessions against liability claims.
- Standard policies don’t cover everything, so you may need additional coverage to protect against risks such as floods and other natural disasters.
- Your insurance agent can help you determine the type and amount of coverage you need.
What is home insurance?
A home is probably the biggest purchase you will ever make, so it makes sense that you want to protect that investment. One way to do this is to stay on top of the inevitable repairs and maintenance that keep your home in good shape. Another way is to buy a good home insurance policy.
Home insurance is a type of property insurance that protects your home and other valuables. A standard policy covers damage and loss to your home and personal belongings. It also protects your assets against liability claims, such as personal injury and pet-related incidents.
Home insurance coverage
Each insurance policy covers certain “perils”, ie the mishaps against which you are protected. According to the Insurance Information Institute, some of the most common risks covered by standard home insurance policies include:
- Damage caused by aircraft, car or vehicle
- Blast
- falling objects
- fire and smoke
- lightning
- Riots or civil unrest
- Flight
- Vandalism and Malicious Mischief
- Volcanic eruptions
- Water damage (from inside the house only)
- Weight of ice, snow and sleet
- Storms and hail
56%
The percentage of homeowners who mistakenly believe flood damage is covered by their standard policy, according to Princeton Survey Research Associates International.
Although standard policies cover many different risks, they don’t cover everythingincluding:
- Floods. Flood insurance is specifically excluded from standard policies, so you must buy it as a separate font. Even if you don’t live in a floodplain, you should still consider flood insurance: 90% of natural disasters in the United States involve some type of flood.
- Earthquake. Earthquake coverage is usually available as a separate policy or as a approval to your current owner’s coverage.
- Maintenance damage. Home insurance does not cover mold, termite and other pest infestations, or damage due to lack of maintenance.
- Saving sewers. Sewer backups are not covered by standard policies or flood insurance. Coverage is usually offered as a separate policy or as a rider.
How much home insurance do I need?
According to Insurance.com, if you have a mortgage, your lender will require a minimum amount of home and liability insurance. This coverage protects your investment, as well as that of your lender.
According to a report by housing data firm CoreLogic, about 60% of all homes in the United States are underinsured — by 20% on average.
Conversely, if you don’t have a mortgage, you don’t need to purchase home insurance. Of course, while coverage is technically optional, it would be very risky to leave what is probably your greatest asset unprotected. Instead, a good rule of thumb is to have enough home insurance to:
- Rebuild your house
- Replace your stuff
- Cover injuries and damages that occur on your property
- Reimburse your living expenses while you cannot live in your home
Standard home insurance policies have four types of coverage that help you achieve these goals: housing coverage, personal property coverage, liability coverage, and additional living expense coverage.
Housing coverage
Recommended coverage: equal to the replacement cost of your home
Home coverage is the part of your home insurance policy that helps pay for rebuilding or repairing your home and any attached structures, such as a garage, deck, or porch, if damaged. by a covered risk.
Ideally, your home coverage should be equal to the replacement cost of your home. This should be based on rebuilding costs, not the price of your home. The cost of rebuilding can be more or less than its price depending on the location, condition of your home, and other factors.
Your insurance agent or appraiser can calculate reconstruction costs for you. Alternatively, you can estimate the cost by taking the square footage of your home and multiplying it by the local building cost per square foot for your type of home. For example, if your home is 2,000 square feet and local construction costs are $100 per square foot, it would cost about $200,000 to replace your home. A local realtor or appraiser should know the average construction costs in your area.
Personal Property Coverage
Recommended coverage: enough to replace all your belongings
Personal property coverage applies to everything in your home besides the home itself: appliances, clothing, furniture, electronics, sports equipment, toys, and even the food in your fridge. Coverage comes into effect if your property is destroyed, stolen or vandalized.
In general, you should have enough coverage to replace all of your belongings. This amount can be very difficult to estimate, as most people have no idea how much stuff they actually own. A good idea is to take an inventory of everything you own: write down a detailed list of what’s in each room and take pictures of the most expensive items.
If you have expensive or rare items, including jewelry, musical instruments, high-end sports equipment, or valuable artwork, you may need additional coverage. Take separate inventory for these items, note their estimated replacement costs, and ask your insurance agent if you need additional coverage for them.
Liability coverage
Recommended coverage: as much as you can afford
Liability insurance is the part of your home insurance policy that kicks in if someone is injured on your property. According to NetQuote, five common liability claims landlords face are:
- Dog bites. Certain dog breeds are considered high risk and are not covered by standard policies. Check with your insurance agent if you have a Pit Bull, Akita, German Shepherd, or another breed of dog that might be considered dangerous. Also check to see if you are covered if your dog bites someone off your property, such as in a park.
- Domestic accidents. You are responsible even if someone enters your property uninvited and gets hurt.
- Tree falls. You could be held liable if a tree on your property falls and injures someone or damages a neighbor’s car or house.
- Intoxicated guests. If one of your guests becomes intoxicated, you could be held liable for any harm that person causes to other people or property.
- Domestic workers injured. If you hire people to clean your house or tend to your lawn, you could be held liable if they are injured on the job.
Most home insurance policies have liability coverage of at least $100,000. It’s a good idea to increase this amount to at least $300,000, or more if you can afford it.
If you need liability coverage that goes beyond your home insurance policy, you can buy an umbrella insurance policy. This can be a particularly good idea if you have a high net worth or above-average risk of being sued (for whatever reason), work from home, or volunteer on a board of directors. ‘administration.
Additional living expenses (ALE) coverage
Recommended coverage: 10% to 30% of your accommodation coverage
If a Fire or a tornado destroyed your home, it could take months or even years to rebuild. Where would you live in the meantime?
Additional Living Expenses (ALE) Coverage is the part of your home insurance that acts as an emergency fund if you are temporarily displaced from your home. It covers things like hotel stay or extra restaurant dining costs when you can’t cook at home. ALE coverage can also reimburse your costs for laundry, furniture rental, storage of your household goods, and boarding for your pet.
Most home insurance policies calculate your ELA as a percentage of your home coverage, typically 20%, according to Insurance.com. If you have a large family (and lots of mouths to feed), you should go for the highest coverage if possible.
The essential
Talk to your insurance agent to find out if you have the right type and amount of home insurance coverage. Often it doesn’t cost as much as you might expect to upgrade from a mediocre policy to great coverage that will protect you well (and keep you awake at night).