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How Much Homeowners Insurance Do I Need?
Everyone who owns a home should carry homeowners insurance.
Your home is, more than likely, the single largest investment you will
ever make and you need to protect that investment. The question
is not should I have homeowners insurance? The question is how
much homeowners insurance do I need? When trying to answer this
question for yourself the things you need to consider are the cost of
rebuilding your home, the value of your personal possessions, and how
much liability coverage you need. In this article we will discuss
each of these.
The first thing we will talk about is how much coverage you need for
your home itself, the structure. If you paid, let's say, $300,000
for your house you don't necessarily need $300,000 worth of coverage to
rebuild the structure. A large part of the cost of buying a house
is not even the house itself but the land that it sits on. If
your house were to burn to the ground you would need to rebuild the
house but the dirt underneath your house would be fine. So you
would need to figure out ahead of time what the cost would be to
rebuild your home.
If your house were to burn to the ground you would also lose all of
your personal property. Things like furniture, appliances,
electronics, etc. would all need to be replaced. Most companies
will cover personal possessions for 50% to 75% of whatever your home's
structure is insured for. You will have to determine the value of
your possessions to know if that 50% to 75% would be enough to replace
your belongings. Another thing to consider when insuring your
personal property is that some policies will pay what it costs to
replace the items and some policies cover the actual cash value of the
items. If you have a 10 year old couch and an 8 year old
television set the actual cash value of those items would be
significantly less than the cost of replacing them with a new
one. So it's best to insure your possessions for their
replacement costs.
The last thing to consider when trying to figure out how much
homeowners insurance you need is the amount of liability coverage you
want. Most policies will come with about $100,000 worth of
liability coverage and some companies may even offer $200,000 or
$300,000 for the coverage. If you have a lot of valuable assets
totaling more than the amount of liability coverage your policy offers,
you may want to consider adding on additional riders to provide
additional coverage. For example if you have a lot of expensive
jewelry, a rare art collection, or you own a business and the value of
any of these things were say, $500,000 you would want to make sure you
have enough liability coverage to protect yourself in the event of a
lawsuit.
These are some of the things you need to think about before you can
answer the question how much homeowners insurance do I need? To
truly answer that question for yourself you're going to need to spend
some time assessing your needs and taking notes about the value of your
assets and what it would cost to replace those assets. It would
be a good idea to consult with a trusted financial professional to help
you determine your needs.