EM Ford & Company - Insurance • Financial Planning • Group Benefits
How Much Homeowners Insurance Do I Need?
Every year take the time to ask yourself this basic question: How much homeowners insurance do I need?
The answer is that you need enough insurance to cover the following:
- The structure of your home.
- Your personal possessions.
- The cost of additional living expenses if your home is damaged and you have to live elsewhere during repairs.
- Your liability to others.
The Structure
You need enough insurance to cover the cost of rebuilding your home at current construction costs. Do not include the cost of the land. And do not base your rebuilding costs on the price you paid for your home. The cost of rebuilding could be more or less than the price you paid or could sell it for today.
For a quick estimate of the amount of insurance you need, multiply the total square footage of your home by local building costs per square foot. To find out construction costs in your community call your local real estate agent or builders association.
Factors that will determine the cost of rebuilding your home:
- Local construction costs
- The square footage of the structure
- The type of exterior wall construction–frame, masonry (brick or stone) or veneer
- The style of the house (ranch, colonial)
- The number of bathrooms and other rooms
- The type of roof and materials used
- Other structures on the premises such as garages, sheds
- Fireplaces, exterior trim and other special features like arched windows
- Whether the house, or parts of it like the kitchen, was custom built
- Improvements to your home, such as adding a second bathroom, enlarging the kitchen or other additions that have added value to your home
Standard homeowners policies provide coverage for disasters such as damage due to fire, lightning, hail, explosions and theft. They do not cover floods, earthquakes or damage caused by lack of routine maintenance.
Most policies cover replacement cost for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality. There is no deduction for depreciation—the decrease in value due to age, wear and tear, and other factors.
Your Personal Possessions
Most homeowners insurance policies provide coverage for your personal possessions for approximately 50 percent to 70 percent of the amount of insurance you have on the structure or “dwelling” of your home. The limits of the policy typically appear on the Declarations Page underSection I, Coverages, A. Dwelling.
Additional Living Expenses After A Disaster
Additional living expenses (ALE) is a very important feature of a standard homeowners insurance policy. It pays the additional costs of temporarily living away from your home if you cannot stay in it due to a fire, severe storm or other insured disaster. ALE covers hotel bills, restaurant meals and other living expenses incurred while your home is being rebuilt.
Umbrella or Excess Liability
Make sure you have enough liability insurance to protect your assets. If you own property and or have investments and savings that are worth more than the liability limits in your policy, you may consider purchasing an excess liability or umbrella policy. Umbrella or excess liability policies provide extra coverage. They start to pay after you have used up the liability insurance in your underlying homeowners (or auto) policy. An umbrella policy is not part of your homeowners policy. You have to purchase it separately. In addition to providing a higher dollar amount, these policies offer broader coverage. You are covered for libel, slander, and invasion of privacy, which are not covered under standard homeowners or auto policies.