Your home is worth $250,000 in the real estate market. Does that mean you should have $250K in homeowner’s insurance coverage?
Not necessarily. When determining the amount of homeowner’s coverage you should have, several factors come into play. You should consider each of these as you work with your insurance agent to set up your policy.
The Structure: What will it cost to rebuild your home if disaster strikes?
To calculate this figure, multiply your square footage by per-square-foot building costs in your area. Your insurance agent can help provide these figures. As you calculate, keep in mind the style of your home, the type of materials used, the features and upgrades, and any additions you have made since initial construction.
The Codes: Have building codes changed since the construction of your home was completed?
If you have to rebuild, you may need to adhere to new codes, which can require additional expense. If you suspect this might be the case, consider adding an endorsement to your policy that allows funds for bringing your house up to code.
The Possessions: Don’t forget everything inside your home. You’ll need coverage to replace your personal property as well. Conduct an inventory of your belongings. This will help you estimate the cost of replacement, and the record will be helpful to have on file if you ever need to make a claim.
The Liability: Homeowner’s insurance also covers your liability as a property owner.
If you are sued due to bodily injury (your dog bites a neighbor) or need to repair property damage (your child’s baseball shatters the neighbor’s window), your liability insurance will cover the associated costs.
Most policies provide at least $100,000 in liability coverage, and it is often advisable to increase this amount to $300,000-$500,000 to ensure sufficient coverage.