As a homeowner, you know you need an insurance policy to protect the largest investment you’re ever likely to make: your home. But determining exactly how much home insurance offers the right amount of protection can be confusing, or even feel overwhelming.
In a nutshell, you need enough coverage to rebuild or repair your dwelling, replace your furniture and belongings, protect your assets from liability, and cover costs if you can’t live in your house.
You may be asking, “how much insurance do I need?” Read on to learn how to figure out how much home insurance coverage you need to protect your residence, your belongings and your assets.
Dwelling coverage pays to rebuild or repair the structure of your house if it’s damaged or destroyed by a covered event, such as fire or a windstorm. The amount of dwelling coverage you need depends on the cost of replacing your home.
This cost is based on local prices, including construction and materials. Your insurer can help you determine a reasonable replacement range. Costs do change, though, so review dwelling coverage limits each year to be sure you’re covered.
For instance, if your home costs $350,000 to replace, you need $350,000 in dwelling coverage. In some cases, though, it might make sense to pay for more dwelling coverage. Labour and materials costs may rise due to inflation, or it might cost more to bring an older home up to code than expected.
Talk to your insurance company about coverage add-ons — such as inflation guard — that may offer more peace of mind.
Personal Property Coverage
Dwelling coverage protects your home’s structure, but what about the objects inside your home? That’s where personal property coverage comes in.
Personal property insurance covers the costs of replacing belongings such as clothing, furniture and appliances if they’re damaged, destroyed or stolen. As a general rule, personal property coverage should be 50 to 70 percent of your dwelling coverage.
Before determining coverage, take an inventory of your belongings in case a claim is needed. Take pictures, video or use an app to create a detailed list of all the items in your home.
Because your property is insured at actual cash value, depreciation will be built-in to reimbursements. That means you won’t be able to cover the entire cost of replacing all your items with brand-new ones. Upgrading your personal property insurance will cost more up front, but ensure your items can be replaced.
High-value items, such as jewelry and computer equipment, may not be totally covered. Talk to your insurer to explore your options.
Your home insurance should include liability coverage. This protects your assets in case someone sues you for bodily injury or property damage. For instance, someone might slip and fall at your home and get hurt, then take you to court.
Choose an amount of liability coverage that protects your assets. Many policies start with a minimum of $100,000 coverage; however, a range of $300,000 to $500,000 protection may be recommended. If you have more assets, consider adding extra liability or umbrella coverage.
Loss of Use
Imagine your home is badly damaged or destroyed in a fire. You must find somewhere else to live while it’s being repaired or rebuilt. Loss of use coverage — also known as additional living expenses coverage — will pay for these living expenses. It may also cover hotel stays, restaurant meals, and laundry and transportation costs.
Many home insurance policies set loss of use coverage at around 20 percent of dwelling coverage. However, some policies allow you to add more loss of use coverage for an additional fee.
Review your home insurance policy regularly to make sure that you’re adequately covered. Talk to your insurance agent about any add-ons that might offer you additional protection and increase your peace of mind.