How to Calculate How Much Homeowner Insurance You Need

More than likely, your home is your largest single investment. Therefore, it makes good sense that you have adequate home-owner's insurance to protect yourself from a huge financial loss. Besides, most mortgage lenders require that proof of insurance be made available before they will close the loan. Since it is up to the states to determine such things as minimum coverage and the types of losses that are to be insured, your decisions will be based, in a large measure, by where you live. If you are about to buy a new home, here are some things to keep in mind as you calculate how much homeowner insurance you need.

Difficulty:

Moderately Challenging

Instructions

Decide on Your Coverage

1. Decide which type of basic coverage you will need. Your insurance policy can cover your home two different ways. You can buy a policy that will pay you a set amount for your house, in the event of a total loss. That amount is usually the market value of the house at the time it is purchased. Or you can buy a policy that will pay you the house's replacement cost at the time of the loss. In other words, your coverage will take into consideration the appreciation on your house. The second policy is more expensive; but, to many people, it is worth the money.

2. Determine the risks for which your policy will provide coverage. Certain risks such as fire are quite standard and are offered in basic policies. The next best coverage is called All Risk. It covers most catastrophic events; but, depending on where you live, losses due to flooding, hurricane or earthquake may not be included and you will need to purchase other insurance against such losses.

3. Specify how you want your basic possessions covered. You can buy coverage based on their cash value or their replacement value at the time of the loss. If you opt for the former, the value of the items covered will be depreciated based on their age and condition, while the insurance company will replace the items, regardless of their value at the time of the loss.

4. Determine the amount of liability coverage you want your insurance policy to provide. Home-owner's insurance policies provide liability coverage in the event that someone is hurt or sues you for certain damages.

Tips & Warnings

• These tips will help you decide the basic coverage you will need to protect your home. Home-owner's insurance has gotten very complicated so find an agent to help you decide what coverage is best for you.

Resources

• Read this Article in Spanish