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How Much Homeowners Insurance Should You Carry?

By Compuquotes Team on March 27th, 2008
Homeowners Insurance

Are you carrying enough homeowners insurance on your home to cover your losses and the costs of rebuilding if something should happen? Far too many new homeowners buy the minimum amount of homeowners insurance required by their mortgage lender, and then just pay the bill each month. They end up surprised and dismayed when they need to make a claim, and learn that the insurance required by their bank is woefully inadequate to cover their losses.

According to most experts, you should review and update your homeowners insurance once a year to be sure that it still meets you needs. That's a good time to evaluate whether or not you're carrying the right amount of insurance to cover the most important eventualities. In general, you should be carrying enough insurance to rebuild your home at current prices. If you're still paying the premium for a policy that was based on the mortgage price you paid fifteen years ago, you could be dangerously underinsured. By the same token, if your homeowners policy covers the full value of your house and land, you may be carrying more homeowners insurance than you need.

Your insurance should pay out enough to cover:

  • the structure of your home
  • your personal possessions (contents insurance)
  • the cost of alternative lodging if you have to live elsewhere while your home is repaired
  • your liability for injuries to others

To estimate how much coverage you should carry to cover structural repairs or rebuilding your home, you can multiply the square footage of your house by the local cost per square foot for construction. You can get those construction costs from a real estate office or from an insurance agent. Don't go by the current cost of homes selling in your area, since those prices will include that cost of the land on which the house is built - and that, except in rare circumstances, is an expense you won't have to cover.

Check also to see exactly what damages are covered. Most basic policies cover damage caused by fire, theft, explosions, collisions, wind and hail. In some high risk areas of the country, you may need separate insurance to cover damage from floods and windstorms, or from earthquakes. Most policies will pay out at replacement cost value, with prices figured at the cost to rebuild using similar materials in the same place. It may also be of value to get an endorsement for ordinances, which will pay any additional costs associated with rebuilding an older building to comply with new codes and laws.

Estimating the value of your personal possessions is another area where many people have trouble. There are two ways to estimate costs for insurance purposes. The first is actual value, which will pay out the depreciated value of anything that is stolen, broken or lost due to a covered incident. The other way of valuing your property is by replacement value - how much it will cost you to replace the items today.

Finally, if you own any expensive or important items, those may need to be covered under a rider or a separate policy. If you own jewelry, high end computers or electronics equipment, antique furniture or collectibles, it makes sense to talk to your insurance agent to be sure that you're adequately insured against loss.

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