How much homeowners insurance do I need?

Your house could be your most valuable asset. A comprehensive homeowners insurance policy is necessary to protect your home. You can also protect your savings and investments by purchasing homeowners insurance.

Although local and state governments do not require you to carry homeowners insurance, mortgage lenders usually do. Most lenders will specify how much insurance homeowners must have, usually over the term of the loan. Mortgage companies consider only the amount of insurance that is necessary to protect their investment. The lender typically doesn’t have any regulations about other aspects of the homeowners policy, like your personal property and liability coverages. It is crucial to have enough insurance coverage. It can be daunting to purchase homeowners insurance for the first time.

Before you purchase a policy, it is important to decide what kind of coverage you require, how much coverage is necessary, and which home insurance company you prefer. It is easy to find the coverage that you need by following these simple guidelines.

What is homeowners insurance?

A “homeowners policy” is a combination of coverages that cover your home, contents, and any associated structures. An insurance agent can help determine the coverage that you require.

The following are some of the options for homeowners policies:

  • Coverage for dwellings: Coverage for dwellingsThis is the main homeowners insurance coverage. It protects your home and any attached structures like a garage.
  • Coverage of other structures:Other structures coverage includes unattached structures such as a shed, detached garage, fence or shed.
  • Protection for personal property:This section of your homeowners insurance covers your contents, including furniture, clothing and appliances.
  • Additional living expenses coverageAlso known as loss of use, ALE coverage may pay some or all of your living expenses if your home is destroyed by a covered claim. If your home is damaged by fire, your additional living expenses coverage could pay for temporary lodging or rent to someone else while you repair your house. ALE also covers expenses out of pocket, such as meals at restaurants.
  • Personal liability coverage Personal liabilityCoverage helps to pay for injuries sustained on your property or in your home. Your personal liability policy can pay for legal fees if your child falls from a tree.
  • Other coverage includes medical paymentsEven if a guest injures themselves at your house or property, you may still be liable for their medical costs.

What standard homeowners insurance doesn’t cover:

There are many things that could happen to your home, and your homeowners insurance policy doesn’t cover them all. You may need to purchase additional coverage for damages that are not covered by your standard homeowners insurance policy. You might want to look into the following coverage if your home insurance policy excludes certain risks such as earthquakes or floods.

  • Flood insuranceAccording to the Insurance Information Institute, Triple-I, 90% of U.S. natural catastrophes are caused by flooding. Standard homeowners policies do not includeFlood coverage. A separate flood insurance policy would be required. Flood insurance is available through the National Flood Insurance Program. This program is administered by the Federal Emergency Management Agency. There are also dozens of private insurance companies. An agent can help you find coverage.
  • Earthquake insuranceMost homeowners policies don’t cover losses or damages caused by natural disasters.EarthquakesEven in high-risk locations, it is possible. Many home insurance companies offer endorsements or policies that cover earthquake damage. This coverage is provided by the California Earthquake Authority in California.
  • Coverage for sinkholes:Sinkholes can be found in many parts of the United States, but they are not covered under a homeowners policy. Sinkhole property losses are typically more than $100,000, so it is important to have this coverage if you live in an area that is susceptible to this danger.
  • Umbrella insurance:After your personal liability insurance limits are reached, umbrella policies can help you pay any liability claims. If a court awards $500,000 to an injured person after they sustain an injury on your property, and your liability limit is only $300,000., an umbrella policy can pay the difference up until the limit of your personal liability insurance.
  • Failure to maintain:A homeowners policy does not cover preventable damage or normal wear and tear. This can be avoided by keeping your home in good repair.
  • Backup sewer:HoweverSewer backupIt is not included in a standard home insurance policy but can be bought as an endorsement. You should also perform preventative checks to ensure your home is protected from any backed-up pipes.
  • Antiques and jewelry of unsurpassed value:Homeowners often consider valuable items like art and jewelry to be worthless. However, coverage can be added to existing home insurance policies with an endorsement or floating. It is important to keep these items safe from theft and damage as a preventative measure.
  • Aggressive dog breeds:Home insurance often does not cover liability issues that arise from ownership of certain breeds such as Rottweilers, German Shepherds, Pit Bulls, or German Shepherds. Your insurance company should know if you own a dog. It is a good idea to find a home insurance policy that covers your dog’s breed if they do not offer coverage.

What amount of homeowners insurance do you need?

Each homeowner’s needs will determine the amount of coverage they need. An agent can help calculate the value of your home to determine the dwelling coverage amount. Homeowners insurance policies generally include secondary coverages that are a percentage of the dwelling coverage amount. The coverage for other structures is usually 10% to 20% below the dwelling coverage value. For example, a $250,000 house would have coverage for other structures at $25,000 to $50,000.

These are some tips to help you determine how much and what type of homeowners insurance you should have.

Learn the difference between replacement cost and actual value

Property loses value over time. Your insurance policy might cover the actual cash value, which is the property’s depreciated value, or the entire replacement cost. Standard homeowners insurance policies offer the option of purchasing replacement cost or actual cash value.

There is usually a limit on the replacement cost value. If your house rebuild costs more than that limit, you might have to pay extra. Two additional options are available to you: guaranteed replacement cost value or extended replacement value value.

Extended replacement coverage allows you to restore your home to its original condition, even if it is worth more than the actual cash value. The coverage limit is usually 50% higher than the actual cash value.

Guaranteed replacement coverage covers the cost of restoring your property, regardless of rebuilding costs. Most companies have a maximum amount beyond which they won’t offer a guaranteed replacement cost. Some companies won’t offer a guarantee replacement cost for homes valued over $1 million.

Different methods can yield different results when calculating the value of your home. Your home might be valued lower by a county or city property assessor than by a real estate agent. To determine how much dwelling insurance you should purchase, you need to look beyond the home’s current market value. If you own an older home with plaster walls and custom-made trim you might need to hire specialists to fix fire damage. When calculating your coverage amount, you should also consider the cost of industrial appliances in your kitchen.

If you need help determining your home’s replacement value, your insurance agent can help. Many insurance companies provide tools that can help policyholders calculate this value.

Consider local building costs

Homeowners insurance is purchased to protect yourself against loss or damage. You should also know the cost of replacing or repairing your home. Find out how much it will cost to rebuild your home or to build a new one. The number of bathrooms, construction materials and special features of your house will all impact how much coverage you need. You might need to have higher coverage if you have custom-made tiling in your living room.

Take into account how you use your home and who uses it.

Your home’s use can determine how much personal liability, medical payments, and umbrella insurance you require. If you host many parties or get-togethers, it may be worth looking into umbrella and higher liability coverage. This will protect you in the event of someone being injured due to your negligence. You may consider increasing your medical payments for other coverage if you own a swingset to protect your neighbor’s child from injury.

Find out the best rental rates in your local area

You could be forced to live in temporary housing for weeks or even months if your home is damaged. You can find out the cost of renting an apartment or home in your local area or staying at a hotel. If you live in a high-end area, like San Francisco or New York City then you may need additional coverage to cover your living expenses.

Protect your personal property

It can help to make a list of all your belongings in case you have to file a claim for personal property damage. This includes:

  • Name and description
  • Actual cash value or purchase cost
  • If possible, date and place of purchase.
  • Photos of each item
  • Estimated replacement cost

A digital inventory can make it easier to file a claim. You should include all valuable items, such as jewelry, cash and furniture, on the list. You can store your inventory in cloud storage or at another location such as your home or office. This will ensure that your inventory is protected in the event of damage to your home. To make it easier, you can ask your insurance company for suggestions on inventory apps.

It takes time to determine the replacement cost and value of your belongings. This should be done with care. Modern sofas and coffee tables can be replaced with relative ease. But possessions like fine art or family heirlooms are usually irreplaceable. Many homeowner insurance policies have limits on how much coverage is included for specific items, such as artwork and electronics. You might want to increase your policy’s coverage limits or purchase additional coverage in the form a floater or endorsement if you have a lot of valuable possessions.

Requesting homeowners insurance quotes

Once you have decided how much homeowners insurance coverage is necessary, you can start getting quotes from different carriers. As a starting point, we recommend checking Bankrate’s list of the best homeowners insurance companies.

The average annual premium for homeowners insurance in the U.S. is $1,312 for a dwelling coverage limit of $250,000. The cost of homeowners insurance in the United States will vary depending on which insurer you choose, as well as where and what coverage you select.

Major home insurance companies offer an online tool to generate a price estimate that is based on your information and your home. You can contact your local agent to get a quote by phone or email. This might prove more accurate.

According to Triple-I, it’s a smart idea to get multiple quotes from different carriers when shopping for home insurance. This will allow you to easily find the right property insurance company for you based on the type and amount of coverage you require.