Home insurance, in the society we live in, has become an absolute necessity to protect the greatest investment we will make in our lifetimes. On the other side of the home purchase; the lenders, who provided financing to purchase the home, will always require that you maintain adequate homeowners insurance. Even if you are one of the few individual who own your home outright, insurance will still be an important issue of home ownership. Now the main question we will all pose to ourselves is, “how much do we need?”
For general guidelines of home insurance coverage, your policy should cover the following 4 important categories:
1. 100% of the fair market replacement cost of your house. The majority of professionals in the insurance industry will recommend that 100 % of the replacement cost of the house should be the absolute minimum amount of coverage. The calculation for determining replacement cost should include the construction materials plus construction labor minus the value of the land. It is important to remember that the replacement value does not correlate with the home’s value within the real estate market. Another coverage option, that may save money on premiums, would be to purchase a policy that only covers 80% of the replacement costs; however, you will have significantly more out of pocket expenses if there is an event that results in your home being damaged or destroyed. It would be in your best interest to monitor regularly the replacement costs of your home and update your policy accordingly. A good insurance professional should provide this service annually.
2. Within the personal property section of your policy, the ideal coverage level should be 100% of the contents within your home. Standard items within this section should include furniture, personal items, jewelry, art, electronics, and sometimes even clothing depending on the value. Your insurance professional should assist you and provide you with an itemized list of exactly what items are or are not covered within your policy. Most insurance providers will assess the total of your personal property will a value of around 50% of the insured value of your home. Again it would be prudent to review your personal property items on a regular basis and update your policy if necessary.
3. If a loss event occurs what will be the cost of temporary housing; odds are that you will need to live out of your home during the time that it is being repaired or rebuilt. The majority of home insurance policies will automatically provide this level of coverage and will provide payments for expenses such as hotels, food, and daily living needs.
4. Liability coverage may end up being the least discussed section of your policy, but many consider it to be one of the most important. This section of coverage within your home insurance will provide coverage in the event that another individual is injured within your home or on your property, or if something (example: Tree) on your property causes damage to a neighboring property, and also legal expenses if necessary.