How to Know How Much Homeowners Insurance Is Needed

The Babylonian Code of Hummurabi in 1750 B.C. allowed sailing merchants to pay a lender an extra fee to cancel the loan in the event of a lost or stolen shipment. Similarly, with homeowners insurance, we pay a premium to hedge against disaster. Just as a home is the greatest investment most of us will ever make, a homeowner's policy is the greatest protection we can buy.

Instructions

1. Meet with an insurance professional to discuss options available for a homeowner policy. Consider all the requirements of the lender or mortgage holder as well as the amount of the mortgage.

2. Find out what it costs to rebuild the home based on square footage, amenities and location. Calculate current material and labor costs. Secure a policy that covers both the mortgage amount and replacement costs.

3. Disregard market value when deciding on homeowner coverage. Keep in mind that market values fluctuate. Focus on replacement cost and the real expense of rebuilding the home in the event of loss. Expect the premium to increase from year to year to reflect inflation and cost of living.

4. Insure personal property for about 70-75% of the value of the home. Increase this coverage for an additional fee to cover valuable antiques, artwork or jewelry.

5. Understand the "additional living expense" coverage that pays for various living expenses incurred should conditions necessitate relocation to temporary living quarter. Know the details of what is covered and to what extent.

6. Be aware of the terms of liability coverage included in the policy. Make sure sufficient coverage is in place for potentially liabilities, such as a swimming pool or guard dogs.

7. Review the policy annually with the insurance professional. Consider increases in costs for materials and labor that can increase rebuild costs. Adjust the insurance coverage accordingly.