How to estimate the amount of home insurance you need


  • When it comes to estimating home insurance, don’t just get fair market value or appraised value.
  • Consider your deductible, housing coverage, and rising labor and material costs.
  • Calculate personal property coverage, liability coverage, and actual cash value versus replacement cost.
  • Check out the insider’s guide to the best home insurance companies.

Although home insurance is not required by law, if you have a mortgage, your lender will require home insurance to protect the investment.

Determining the amount of home insurance depends on the type of home you are buying – condo, mobile home, townhouse, or single family and goes beyond the appraised value of your home.

How to estimate the amount of home insurance you need

When it comes to estimating how much home insurance they need, most people just focus on the price of repairing or rebuilding the house itself, called home coverage. When estimating the cost of home insurance, don’t just get the fair market value (FMV) or appraised value and stop there.

You should also consider your deductible, housing coverage, increased labor and material costs, personal property coverage, liability coverage, and cash value. actual versus replacement cost.

The four basic elements of home insurance are: (1) home coverage; (2) coverage of personal property; (3) personal liability cover; and (4) additional living expenses if you have to move temporarily because your home is uninhabitable.

Personal Property Coverage protects your property and furniture from damage due to covered events, known as insurance risks such as theft, fire, lightning, hail, and vandalism. Basic personal property coverage is usually $ 100,000, but if you have specialty items like high-end electronics, jewelry, or artwork, these will be excluded basic coverage requiring additional coverage known as a personal effects rider or separate jewelry insurance.

Personal Liability coverage provides protection for homeowners if someone is injured on your property or sues for damages and is typically $ 100,000. If you have a swimming pool, an exotic pet, or a certain breed of dog, this coverage is probably not sufficient and may require an umbrella policy.

How to estimate housing coverage

Your home consists of your house and any other structure on the property, such as a garage or shed. If you bought a condo, the association owns the building and the common areas. Therefore, housing coverage for a condo / co-op is provided by the main policy of the condominium association. In this regard, condo insurance is similar to tenant insurance, insuring your unit and the property inside your unit.

Home coverage is based on the cost of repairing or rebuilding your home in the event that it is damaged due to an insurance risk, such as theft, fire, or storm. This is why the cost of home insurance varies depending on the type of home you own. Old and heritage homes have charm – and rules and regulations for historic homes, making the cost of repair or rebuild more expensive.

Additionally, if you have a mortgage, your lender may have a preference for the amount of coverage.

The cost of repairing or rebuilding your home depends on several factors:

  1. Age of your home – older homes usually need more maintenance
  2. Age of your roof – roof repairs can be expensive
  3. Appraised value of your home – get a good appraisal to make sure it’s not undervalued
  4. Location (urban vs rural) – materials may not be readily available in some areas
  5. Size your home – a smaller home requires less materials to repair or rebuild
  6. Labor and construction materials.

Another factor that will impact your home’s coverage is whether your home is located in a disaster-prone weather area.

Homeowners in disaster prone areas will have increased costs

Homeowners in disaster prone areas will have increased costs. Typically, during a natural disaster, the supply chain is disrupted, resulting in an increase in the price of materials, supplies and labor. This should be taken into account in your annual review of your home insurance.

Additionally, if a home is in a risky area – floods, hurricanes, wildfires, mudslides, tornadoes, hail, and earthquakes – you will need additional or separate coverage as these disasters typically aren’t. no risks covered. It’s important to make sure you have good coverage, an up-to-date policy, understand the risks, and have evacuation plans ready.

Unfortunately, with climate change and the increase in natural disasters like wildfires, some California home insurance companies are letting their customers down. This is why most flood insurance is issued through FEMA, as many insurance companies did not want to insure homeowners in flood prone areas.

Understanding your home insurance deductible

Your deductible is subtracted every time you make a home insurance claim. Having a deductible greater than $ 1,000 reduces your annual premium. However, if you experience a loss and make a claim, more will be deducted from your payment. This is an important consideration if your home is located in weather or disaster prone areas where you may have multiple claims in a year.

If you have a dollar amount for your deductible, it will be deducted from your claim. For example, your house is damaged by a storm and the insurance company calculates your loss at $ 15,000 to repair the damage. If your deductible is $ 500, the insurance company will pay you $ 14,500.

If your deductible is a percentage, like 2%, then that amount would be deducted from your claim. If your home was insured for $ 500,000 with a 2% deductible, you would have deducted $ 10,000 from each Claim. For example, if you have a loss of $ 15,000, the insurance company will deduct $ 10,000 from your loss and pay you $ 5,000.

In addition to your standard home insurance deductible, there are other separate deductibles for storm riders, flood, hurricane, and earthquake insurance.

Actual cash surrender value versus replacement cost

It is important to know whether your policy offers a replacement cost or an actual cash value (ACV). Homeowner and tenant insurance policies generally use “replacement cost” when paying for covered damage. Replacement cost is the cost of replacing the item with a new or used product.

The actual cash value takes into account the depreciation of the item. For example, if a leather sofa is damaged by flooding, the actual cash value takes into account the depreciation of the item. The actual cash surrender value is usually less than the replacement value.

Many home insurance companies, like Nationwide, offer better roof replacement and guaranteed replacement cost, sometimes at an additional cost.

If you have suffered flood damage, flood insurance is based on actual cash value.


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