Appropriate Coverage Amounts for Homeowner's Insurance
For most families, a personal residence is their most valuable possession. If they lost the home for any reason, be it from fire, a flood, wind damage, a sinkhole or anything else, it would be a financial disaster from which they may never recover. Carrying some form of homeowners coverage is a must. The only question is how to arrive at a reasonable amount of coverage that truly covers your damages.
Other People Are Reading
-
Market Value vs. Replacement Value
-
The first principle to understand is the replacement value of the home. Your home may cost much more to replace or rebuild than you paid for it, and it may cost more to replace than the home's market value at the time of the loss. This is because of the general rising cost of materials and because building codes have become more stringent over time.
Considerations
-
When deciding how much insurance to purchase, disregard the value of the land. You should plan on insuring the cost of replacing the home. You won't have to replace the land. Consider the cost of labor and materials in your market, the home's square footage, the type of construction and style of the house, and how much of the house was custom built. as opposed to prefabricated. It costs less to replace a prefabricated home than it does to replace one with a large number of custom-built features. If you customize your home, you may wish to purchase additional coverage to reflect that fact.
-
External Factors
-
In addition to insuring the basic structure of the home, you should also give careful thought to insuring your personal possessions within it, including furniture and collectibles. You may also want to insure any additional buildings on the property, such as storage sheds, barns, and outbuildings and their contents.
Exclusions
-
Pay careful heed to what your homeowners policy covers---and what it does not. Most standard homeownership forms do not include flood insurance or earthquake damage. You may need to obtain additional coverage via the National Flood Insurance Program or from state programs such as the California Earthquake Authority.
-
