Understanding How Much Homeowners Insurance You Need

Blog posted On May 27, 2020

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When was the last time you examined your homeowner’s insurance policy?  Now, more than ever, homebound homeowners are making sure their homeowner’s insurance policies offer adequate coverage, as your home has become your living, working, and schooling space during nationwide stay-at-home orders and social distancing guidelines.  You don’t want to pay for coverage you don’t need, but you want to make sure you’re protected.  The biggest mistake most homeowners make is not updating their policy.  The original policy you took out when you bought your home might not be enough to cover its appreciation in value or might not accommodate the increased frequency in natural disasters like fires and hurricanes.   

“The biggest danger we see […] is underinsurance.  That is by far the biggest problem homeowners run into, when an unfortunate event occurs and they have to file a claim,” Executive Director of Consumer Watchdog, Carmen Balber, told  CoreLogic data reveals about 60% of US homes are underinsured by an average of 20%.  Whether you’re buying a new home or currently a homeowner, how do you know if you have enough homeowners insurance? 

Calculate Replacement Costs – Not Total Home Value

Did you know the market value of the property includes the value of the land?  Chances are the land your home is built upon is not going anywhere.  While you do not have to insure the entire market value of your home, consider all of the replacement costs.  Rebuilding the structure will incur construction costs, which will go up over time.  In some cases, it might be worth it to get “extended replacement cost” coverage if you expect your local construction costs to increase substantially.

Consider the National Flood Insurance Program

Even if your home is not located near a coast or floodplain does not mean you are not susceptible to flooding.  Shifting coastlines, heavy rainfall, and other emerging natural disasters may cause your home to flood and flooding is generally not covered by homeowner’s insurance.  Use the National Flood Insurance Program to get connected with a broker and purchase separate flood insurance.  Your broker will help you determine how much coverage you need. 

The Contents Count

You may associate homeowners insurance strictly with your home itself, but this is also an opportunity to cover the everything inside, from furniture to jewelry and artwork.  Document your valuables with photos and videos so you are prepared in case of loss or damage.  The contents inside your home can usually be insured anywhere from 50-75%.   

Don’t Forget Liability Coverage

You want to protect your home and your belongings, but you also need to protect yourself.  If someone injures themselves on your property, you could be liable.  Adding liability coverage protects your home and your assets if someone injured on your property sues you. 

Review and Update Your Policy Annually

Most homes appreciate over time, especially if you’ve taken care to maintain your property or completed any renovation projects.  When you review your homeowners insurance policy consider any investments you’ve made in your home that year.  A kitchen remodel or new HVAC or plumbing system increases your home’s value.  You also may want to look at comparable homes in your area.  Do you live in a desirable location where home values are appreciating more rapidly?  Your coverage should account for that.

Consult an insurance agent before you buy or update insurance policy to make sure you have adequate coverage.  You want to make sure your home is protected