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Written by Laura Berry
Former Insurance Agent Laura Berry

Joshua is a copywriter at Obrella who for more than 10 years has been creating content about insurance, health care, and more. He helps companies explain complex insurance subjects in simple ways so that customers can make smart buying decisions. He spends way too much time binge-watching Netflix, loves the outdoors and has a cat who tolerates him.

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Reviewed by Joshua Adamson
Joshua Adamson

UPDATED: Feb 4, 2016

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How Much Insurance Coverage Do I Need For My Home?

Home insurance is important for protecting your home, belongings, and finances in the event of unforeseen damage to your home. To calculate how much coverage you need for your home, consider your home's structure, your personal possessions, additional living expenses if you have to live elsewhere during any home repairs, and your liability to others.

Structure

Purchasing enough insurance to cover rebuilding the structure of your home means covering the current value of your home, which may be more or less than what you paid for it, at current construction costs. Have an accurate appraisal to make sure you’re not overpaying for this coverage.

Several factors determine how much insurance you need to rebuild your home. Two of the main components are your home’s total square footage (not land) and local building costs per square foot. For a quick estimate, multiply the square footage by the building costs. Other factors include the type of exterior, style, number of rooms, and types of materials used in the structure of your home.

Unless you have an older home, your policy likely covers replacement cost for structural damage. Replacement cost means repairing or replacing that property with similar kind and quality materials, with no deduction for depreciation.

While you’re paying a mortgage, some banks require you have enough insurance to cover the remaining amount of your mortgage. But when you pay your mortgage off, that doesn’t mean you should get rid of homeowners insurance, as you still need it to protect the investment you’ve made in your home.

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Personal Possessions

To determine the amount of coverage you need for your personal possessions, do a detailed home inventory of everything you own and add the replacement costs of each item. Most policies cover your possessions for about 50 to 70 percent of the amount of structural insurance you have.

For this insurance, choose either replacement cost or actual cash value, which is replacement cost minus a depreciation deduction. Replacement cost tends to be worth about 10 percent more than actual cash value, but it comes with a higher premium. Either way, your insurance has limits, or the maximum amount the provider covers. After surpassing the limit, you cover the rest of the costs out of pocket. The higher your limit, the more you pay for your premium.

Some valuables, such as jewelry or computers, have their own limits, which means they might not be fully covered under your homeowners policy. If your original policy’s limits are too low to cover these items, consider purchasing a special personal property floater or endorsement. These do not come with a deductible. Instead, your premium is based on what the item is, its monetary value determined by a recent receipt or appraisal, and where you live.

Additional Living Expenses

Following a disaster or during home repairs, you may have to live elsewhere temporarily, which can incur costs in addition to the damage to your home. Expenses include hotel bills, meals, and other living expenses. If you rent part of your home, the rent you would have collected in that time is also a living expense covered by your insurance. While the exact percentage varies between companies, many policies cover for about 20 percent of the amount of insurance you pay on the structure of your house.

Home insurance is important for protecting your home, belongings, and finances in the event of unforeseen damage to your home.

Liability to Others

If you, your family member, or pet causes bodily injury or property damage to someone, that person can sue you for damages. In this case, homeowners insurance covers the damages and costs of defending yourself in court. Many providers cover a $100,000 minimum, but you can find higher coverage amounts, if you think you may need it.

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Umbrella or Excess Liability Coverage

Umbrella or excess liability policies cover the amount of damages or replacement cost left over from where your homeowners insurance met its limit. This insurance also covers a broader range of situations, such as invasion of privacy or slander. It is not part of your homeowners insurance, so you purchase it separately. If you don’t feel your homeowners insurance is enough to protect you, your home, and your belongings, consider this type of coverage.

If you are confused as to how much insurance coverage is best for your home, give an experienced agent a call today. They can help you compare a variety of home insurance policies and choose the policy that is best for you and your home.

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