How much homeowners insurance do I need ?
You're getting ready to buy a home and know that you'll need insurance to cover your house and all your belongings that go along with it. But how much insurance should you consider? Understanding the basic coverages and the ones you can “add on” to your policy can make it easier to determine what you need.
Here’s an overview of what’s typically included in a homeowners policy, what each covers, and how much you may need.
The 6 Basic Coverages in a Homeowners Policy:
1. Dwelling What It Is: Pays to rebuild or repair your home if it is damaged by a covered loss, such as fire, windstorm, hail, lightning and vandalism.
How Much You May Need: Determined by the estimated cost to rebuild your house, not by the market value of your home. If you have a mortgage, your lender may even require certain dwelling coverage options, limits and deductibles.
2. Other Structures
What It Is: If you have a detached garage, shed or fence, these structures are covered by this portion of the policy.
How Much You May Need: Generally, most policies cover detached structures for about 10 percent of the amount of insurance you have on the structure of the house. Based on what other structures you have on your property, you may want to consider increasing this percentage.
3. Personal Property What It Is: Personal property covers items like furniture, clothing and kitchen items – even your refrigerator – if they are damaged or destroyed by a covered loss.
How Much You May Need: Most home insurance companies will set your personal property limit between 50% to 70% of your dwelling coverage. You will need to determine the total value of your possessions to decide whether this default amount is appropriate for your needs. Personal Property is often covered at Actual Cash Value, meaning you are paid the reasonable cost to repair or replace a damaged item less a deduction for depreciation. We suggest choosing Replacement Cost coverage for Personal Property. Replacement Cost pays what it will cost to repair or replace your belongings at today’s prices with no deduction for depreciation. Both options are subject to applicable policy limits and deductibles.
Optional Coverage Available
Some types of property, such as jewelry, electronics, or other collectable items, may have a limited amount of coverage based on the type of claim. A Scheduled Personal Property endorsement can provide itemized coverage to ensure expensive items are covered at the time of a loss.
4. Loss of Use
What It Is: If you're not able to live in your home due to a covered loss, this part of the policy pays additional living expenses while your home is being restored.
How Much You May Need: Loss of use coverage is commonly based off of your dwelling coverage and calculated at about 20% to 30% of the dwelling coverage limit.
5. Personal Liability
What It Is: This helps protect you from lawsuits if you or members of your household are responsible for causing bodily injury or property damage to others.
How Much You May Need: Many homeowners insurance policies provide a minimum of $100,000 in personal liability coverage, meaning the insurance company can pay up to that amount in total to injured persons per occurrence. Our recommendation is that your liability insurance exceed the value of your home and all other assets owned by your family, including your vehicle, money in a bank account, and investments. You may also purchase a personal liability umbrella policy to provide additional liability coverage.
6. Medical Payments
What It Is: This helps pay medical bills for a visitor that is accidentally hurt while on your property. The insurance policy pays up to the policy limits shown in your policy for covered claims. This coverage is provided regardless of whether or not you are legally responsible.
How Much You May Need: Many homeowners insurance policies provide a minimum amount of $1,000 coverage, per person. We recommend at least $5,000 coverage.
While homeowners insurance has multiple elements, it can be easier to digest when you break it down by coverage. Keep in mind that all homeowners policies aren’t identical, you'll want to understand what's covered in an insurance policy before you purchase it. If it’s been awhile since you purchased your policy, it may be time to revisit it with one of our Service Agents, at 855.855.8805, or firstname.lastname@example.org and make sure it meets your current needs.