How Much Homeowners Insurance Do I Need?

By: Jim Waltrip
So, you've recently purchased a new home, and you know you need homeowner's insurance, but just how much? According to Insurance Information Institute (www.iii.org), you need enough insurance to cover the structure of your house, your personal belongings, the cost of additional living if you are forced to temporarily live elsewhere, and liability.

If your home is damaged or destroyed, you need enough homeowner's insurance to cover the cost of rebuilding your house at current construction costs. You don't need to factor in the cost of land, and don't base the costs for rebuilding on the original price. Depending on various factors, such as local construction costs, structure square footage, style of the home, etc., rebuilding your home could cost more or less than the price you paid or what it is currently worth.

A standard home insurance policy provides coverage for damage caused by fire, lightning, hail, explosions and theft. Most policies don't cover floods, earthquakes, or damage caused by lack of routine upkeep. To cover these disasters, you need to buy separate policies for flood insurance and earthquake insurance. You can consider adding replacement costs, guaranteed or extended replacement coverage, or an inflation guard to your policy.

Conduct a home inventory to determine if your personal possessions are covered by your home contents insurance. Create a detailed list of everything you own and information about replacement costs of these items in case they are stolen or destroyed. Many homeowner's insurance policies provide coverage for your personal possessions for approximately 50 to 70 percent of the amount of insurance you have on the structure of your home. Creating a home inventory list helps you determine if this is enough coverage. You can insure your belongings for their actual cash value, which covers the cost of your home or possessions minus a deduction for depreciation up to the limit of your policy, or opt for a replacement cost policy. The replacement cost policy covers the actual cost of replacing your home and possessions up to the limit of your policy, and without a deduction for depreciation. In general, the price for replacement cost coverage is about 10 percent more than that of actual cash value.

An important feature of your homeowner's insurance policy is coverage if you are forced to temporarily live somewhere other than your home due to damages caused by insured disasters. This can cover hotel bills, meals at restaurants or other living expenses incurred while your house is being rebuilt. This coverage differs from company to company, but many insurers will provide additional coverage for about 20 percent of the insurance on your home.

In case of bodily injury or property damage caused by you or your family to another person, your private home insurance policy covers you against lawsuits. The "liability to others" part of your policy also covers damage caused by your pets, and the cost of defending you in court and for any damages the court rules you must pay. Typical homeowner's insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available. Experts are recommending that homeowners consider purchasing at least $300,000 to $500,000 worth of coverage of liability protection. Purchasing an umbrella policy or excess liability policy will provide that extra coverage.
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