Homeowners Insurance Coverage: How Much is Enough?
When selecting a homeowners insurance policy, it is important to have a good idea of exactly how much coverage you will need to sufficiently protect your home and your possessions.
So, how can you know how much homeowners insurance coverage is enough?
Protecting Your Home
The primary reason to carry homeowners insurance is to protect your home. If your home is severely damaged or destroyed, you will want enough insurance to cover the cost of rebuilding your home at current construction costs.
The following factors will impact how much insurance you will need in order to rebuild your home if necessary:
- Local construction costs (you can find out these costs from a local real estate agent, builders association or insurance agent)
- Your home's square footage
- The material used for exterior wall construction, such as frame, masonry or veneer
- The style of your home, such as ranch or colonial
- The total number of rooms, including the number of bathrooms
- The type of and materials used for your home's roof
- Other structures located on the property, such as a detached garage or shed
- Special features of the home, including fireplaces, exterior trim or arched windows
- If any part of the home was custom built
- Any improvements made to the home, such as adding a second bathroom or enlarging the kitchen
Protecting Your Personal Possessions
Many homeowners insurance policies provide enough coverage for personal possessions to cover approximately 50 percent to 70 percent of the insured amount for the structure, or dwelling, of your home. For example, if you carry $250,000 worth of insurance on the structure of your home, then your policy could provide coverage from personal possessions ranging from $125,000 to $175,000.
The best way to determine how much coverage you require to adequately protect your personal possessions is by conducting a home inventory.
To conduct a thorough home inventory, you will want to take the following steps:
- Make a list of your possessions - describe each item and note where you bought it as well as its make and model.
- Include with the list any purchase contracts, sales receipts, and appraisals you have.
- For your clothing, count the items by category (i.e. pants, shirts, shoes, etc.) - make notes about any clothing that is especially valuable.
- For major appliances and electronics, record the items' serial numbers.
- Take a picture of each room, capturing all items located in the room - don't forget about closets and drawers.
- Keep your list in a safe location, such as a safety deposit box.
Cost of Additional Living Expenses
Standard homeowners insurance policies generally include coverage for additional living expenses you are unable to live in your home following a disaster. This coverage typically includes hotel bills, restaurant meals and other living expenses incurred while temporarily living away from your home.
Many homeowners insurance policies will cover additional living expenses up to 20 percent of the insured amount for the structure of the home. So, if you carry $250,000 of insurance on your home, then your living expenses could be reimbursed up to $50,000.
Protection against Lawsuits
In addition to protecting one's home and possessions, homeowners insurance provides liability coverage, or protection against lawsuits for bodily injury or property damage brought against you or members of your family. Liability coverage also covers damages caused by pets. Insurance experts recommend purchasing between $300,000 and $500,000 worth of liability coverage.
You also can purchase additional coverage to protect your assets through umbrella or excess liability coverage. These types of policies kick in after you have reached your liability limits for your standard homeowners insurance policy.