How Much Homeowners Insurance Do I Need?

By Compuquotes Team on January 24th, 2009

Homeowners Insurance

We all know by now that homeowners insurance is something that all homeowners need to protect their investments. Of course, for mortgage holders, the lenders who gave the money to purchase the home will require you to have homeowners insurance. Even for people who own their home without any debts or liens, the big question is, "how much homeowners insurance is needed?" - Let's explore what level of insurance you will need for your home to ensure you are adequately protected.

Generally speaking, you need to purchase homeowners insurance that will cover:

  • The replacement cost of your home to 100 per cent of its value. Most insurance agents, brokers and companies will recommend to home owners and buyers that they insure the house for 100 per cent replacement cost. This will cover the rebuilding of your home, minus the cost of the land. This replacement cost value is not how much your home is worth in the real estate market, such as it would be if you sold it, but rather the cost to rebuild your home where it stands now at the current costs of construction. There is the option to purchase 80 per cent replacement cost coverage, and this homeowners insurance is much cheaper than 100 per cent coverage, however, if you do have a loss, the amount that you recover will be considerably less and can leave you with out of pocket expenses to replace and rebuild your home. It's important that you review the current costs of construction and update your homeowners insurance regularly; however your agent/broker/company should do this for you yearly when your insurance policy renews.
  • The full contents of your home. This part of a homeowner's insurance policy is called personal property coverage. This covers your furniture and possessions for the most part, but can also include jewelry, paintings, electronic equipment, etc, up to a certain value. However, it's important that you double check with your insurance company and your policy what is and isn't covered with your personal property coverage and what the upper limit is that you can claim in these categories. In general, your insurance company will assume that the possessions are worth approximately 50 per cent of the value of your home that you've insured it for. It may be best to do a full inventory of your household items and their approximate values to give to your insurance company so they can adequately insure your contents.
  • The cost of living elsewhere if you experience a loss. If you do experience a loss in your home, chances are you will have to reside elsewhere while your home is being rebuilt or repaired. Most homeowner's insurance policies will include coverage for hotels, living expenses and meals that you will incur the cost for while your home is being repaired or rebuilt.
  • Liability. This part of a homeowners insurance policy covers you in the event that someone else is hurt on your property or in your home, or if something around your home or in your home causes damage to someone else's property. Liability coverage will also cover legal bills if you are sued for any of these cases.

Be sure to speak with your insurance agent about what you are covered for, specifically, to make sure that your policy is adequate coverage for you, your contents and your home.

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