October 11, 2018

How Much Homeowners Insurance Do I Need? What to Consider When Choosing a Policy

The bottom line is, considering all the factors that go into covering your home, a stable and reliable homeowner insurance policy is one of the best investments you can make.

A model home sits on a table

Whether you are planning to buy a new home or you have already purchased one, you might have spent some time thinking about a home insurance policy. There is no denying the fact that a house is one of the most valuable possessions that most of us will ever own and needs guaranteed security. Homeowners insurance policies in this regard will protect your home in some ways.

Before we plunge into the details of how much homeowner insurance you need and what to consider before applying for a homeowner policy, let's understand some aspects where you may require home insurance. According to the Insurance Information Institute (III), deciding whether or not you “need” homeowners insurance isn’t always up to you. That's because when you apply for a mortgage, the lender or the mortgage company will often require that your house is adequately insured before offering financing for you to buy the house. Typically, the standard homeowner policy covers much more than the physical structure of your house. It may include:

  • Dwelling Coverage: Also referred to as "dwelling insurance," it is a significant part of your home insurance and covers any structural damage to your home if the damage comes under "covered hazard.
  • Family Protection: Homeowners insurance policy also cover liabilities related to your family. If you and your family accidentally damage someone’s else’s property or injure them, some homeowners policies will cover the repair, or even pay for medical bills and legal fees.
  • Personal Property: Some policies will replace personal belongings such as electronics and furniture in the event of damage.
  • Additional Expenses: This coverage pays for additional expenses if your home is damaged by flood, fire or any other covered peril and you cannot stay there. This can include living expenses like hotel bills and rental cars if you’re displaced for an extended period of time.
  • Other Structures: Any other structures on the policy refers to replacement or repair for property’s detached structures like shed, lighting, and fence if damaged by a covered hazard.

How Much Homeowners Insurance Do You Need?

If any disaster (earthquake, flood, fire, hailstorm, etc.) strikes, you will want to protect your house. For that, you will need enough insurance to pay for repairs and fix any damage. Homeowners insurance helps you replace or repair your belongings, repair your home, defrays your living costs if your home is completely damaged, and protects your financial resources and assets. The standard policy provides coverage for things like lighting, fire, explosion, and hail. People residing in areas that are at high risk of earthquake or flood require insurance coverage from these disasters. Similarly, it essential that your insurance policy limits are high enough that they cover rebuilding your home from the ground up if necessary. While an insurance company recommends a coverage limit for you, determining structural coverage is essential. To help you with that, we have compiled a list you should consider before choosing a policy.

Major Factors

  • Construction cost
  • Square footage

Both square footage and construction costs are important to consider as they directly influence your rebuilding cost. Make sure you estimate the amount you are going to need by multiplying per-square-foot building costs to your home by total square footage.

Other Factors That Impact Rebuilding Cost

  • Your wall exterior – frame type (stone or brick), masonry
  • Number of rooms – including bathrooms
  • Style of your house – colonial or ranch
  • Roofing material – asphalt shingles, steel, clay tile, etc
  • Other attached structures – sheds, garages
  • Unique features –including arched windows, fireplaces, exterior trims
  • Custom features of your house
  • Additional improvements of the house that add value to design and cost – like kitchen renovations and new bathrooms
  • Updated building code

The bottom line is, considering all the factors that go into covering your home, a stable and reliable homeowner insurance policy is one of the best investments you can make.

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