How Much Homeowner's Insurance Do I Need? Here's Your Answer

Posted on May 24, 2019

"How much homeowner's insurance do I need,"?

This question is popular with people who understand the dangers facing homes and the high cost of reconstruction. Water damage, for instance, is unpredictable, yet it accounted for 49 percent of Canadian home insurance claims in 2017.

The scale of damages following a disaster can be immense. Your home insurance should be enough to pay for the rebuilding of your home structure and the replacement of your belongings.

If you can’t dwell in the house any longer, your insurance should reimburse your extra living expenses. It should also include a liability coverage should someone get hurt within the property.

Realizing that your home is underinsured when a catastrophe has already ruined it can be devastating.

So, how much homeowner's insurance do I need? Use the guidelines below to make the best estimate for your home insurance package.

1. Compute the Dwelling Coverage You Need

Dwelling coverage is the part of homeowners insurance that covers the cost of rebuilding a covered home. It also protects additions like the garage should the insured threat destroy them. When doing the estimate, consider the cost of built-in installations like the water heater system.

A standard homeowner's policy may take in fire, hail, and lightning. If your neighborhood is prone to calamities like earthquakes or floods, your coverage should include them.

The value of your home or the amount you paid for it may differ from the cost is rebuilding it. Similarly, some banks base your insurance policy on your mortgage, and it may be insufficient for reconstruction. As a rule of thumb, ensure that the limit of your plan is high enough to replace your house.

Calculating the Home Replacement Cost

Getting the cost of rebuilding a home can be tricky, but these steps can guide you. First off, multiply the square footage of your home by the current construction costs. Most construction companies have their prices published on their websites.

Look for an online home construction calculator to compute another estimate for comparison. Apart from square footage, the tool should take into account the building materials and the number of rooms

Next, ask a professional real estate agent or appraiser to assess your home. Use the three figures to make an educated guess of the amount you would need to build a replica of your home.

Considerations that Impact Home Rebuilding

Many factors come into play when determining the cost of house construction. You'll have to think about the building materials, style, number of rooms, features like fireplaces, and so on.

Home customization also contributes to the cost of a house. For instance, kitchen improvement or the addition of a bathroom can increase the overall value of a home.

Other factors that influence the rebuilding cost include:

Possible Hike in the Price of Building Materials

The price of most products increases with inflation. Over time, wages for workers increase, and the overall construction cost follows suit.

Still, a calamity that affects an expansive region can stir up demand and diminish the supply of building materials. The result is overpriced construction items like timber, bricks, and stone.

A guaranteed replacement cost policy can shield you when the cost of home replacement exceeds your insurance policy. It pays for the whole amount required to restore your home to its condition before the disaster.

Building Codes

Building codes are dynamic, and new ones may have come up after the construction of your house. Regulations may demand you to rebuild your home to the current standards.

How much homeowner's insurance do I need for new building codes? Unfortunately, most policies will not pay for them. You may have to cover the extra expense.

Hard-to-Replace Features

Some features in older homes like decorative moldings and carvings can be expensive or difficult to recreate. For this reason, some insurances carriers do not have replacement policies for them.

If your house is several decades old, you may require a modified replacement cost policy. Instead of replicating everything in the older home, repairs come in modern materials and the current construction methods.

House Remodeling and Additions

After acquiring a home, you can decide to improve some specific areas. You can upgrade the floor, replace grout countertops with quartz, or install double tub stainless steel sinks in the kitchen.

Your family can also grow and push you to add more rooms, or you can set up a workshop or garage.

These modifications cost money, and you should update your homeowner's insurance policy to include them. Otherwise, you will have to rebuild them if your home gets destroyed in a catastrophe.

2. Determine Your Personal Property Insurance

After figuring out the necessary coverage for your home structure, it's essential to consider your personal property. Items to evaluate under this category include furniture, electronics, appliances, clothes, sports equipment, and so on. The aim is to protect your possessions from destruction, vandalization, or theft.

When it comes to coverage for your belongings, most homeowners insurance policies offer way less than necessary.

Aim to have a personal property insurance cover that can replace all your items. Picture a worst case scenario where you have lost all your possessions.

How much would it cost you to replace everything? Your answer should be the size of your personal property coverage.

Estimating Your Personal Property Coverage

Most people don't know how much they own, probably because they accumulate possessions over time. Therefore, they often underestimate their homeowners' insurance policies.

If you don't want to underinsure, do a thorough inventory of what you have. Check every room and take photographs of items of substantial value.

Although this may look like too much work, it will pay off when you need compensation for lost or damaged items. There are several home inventory apps that you can utilize to track your belongings and compute their value.

Something to ponder before subscribing to a policy is whether to cover your items for actual cash value or the replacement cost. Insurance policies for replacement cost are usually more expensive than actual cash value policies, but they offer full indemnity.

Coverage for Jewelry and Expensive Items

There are limits to personal property insurance. If you have expensive jewelry, for instance, you may need to seek additional coverage.

Single out your most valued items and write down their estimated replacement costs. Find out if your insurance company requires you to buy an additional policy for them.

3. Estimate the Liability Coverage for Your Property

Accidents happen without warning and people can get hurt. If someone sustains injuries in your home and decides to sue, you might have to part with a considerable amount.

You cannot tell how the court will rule. If the complainant wins the case, you are likely to pay all the legal fees involved alongside compensation. The final cost can be overwhelming.

Liability protection in homeowners insurance saves the day when someone gets hurt at your home. It covers you against accident lawsuits and damages that you and your family or pets cause to others.

Medical Payments Insurance

Although medical payments can be a separate part of your insurance plan, it is sometimes grouped in with liability.

It's advisable to have a considerable amount in medical payments insurance, especially when your home has frequent visitors. If you have a liability limit of $150,000 and someone files a lawsuit for $280,000, you would be responsible for the difference. If you cannot raise the $130,000, your assets could be at stake.

You can protect your assets with an umbrella policy. This type of insurance allows for more coverage than the standard limit for liability coverage for homeowners.

4. Decide the Amount for Additional Living Expenses

Additional living expenses (ALE) is a critical feature of the homeowners' insurance policy. It pays for the costs in a temporary residence if you cannot live in your home due to an insured disaster. The included expenses may be hotel bills, meals, and other living expenses accumulated while your home is under construction.

'Additional' is the keyword in this policy. The insurance company will compensate for the extra amount you will be spending as a result of the disaster. Technically, it will be the difference between your usual living expenses and your current overheads.

If you had rented out a section of your home, ALE reimburses for the rent lost during the rebuilding period. However, the plan varies from a company to another.

How Much Homeowners Insurance Do I Need? Final Thoughts

A home is the most noteworthy investment for most people. You cannot afford to keep it uninsured or underinsured since a catastrophe can wipe it out in minutes.

Without insurance, you can experience untold pain and suffer a lot with your family. It can take you years to reconstruct the home and recover from the trauma.

So, still wondering "how much homeowner's insurance do I need,"? You'll need to consider the cost of home rebuilding and replacement of personal property. Assess your need for liability coverage and additional living costs.

Adequate coverage can get you back on your feet within a short time. As your home undergoes reconstruction, the insurance company can pay for the unexpected extra cost of living.

Are you considering a homeowner's insurance policy? Contact us today for expert advice.

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