You’re shopping for homeowners insurance. Maybe you even have a few quotes. You know to get an accurate comparison, you need to compare apple to apples with how much coverage is offered.
But how much homeowners insurance do you actually need? How can you tell whether your quote offers too much coverage or not enough?
Aside from working with Kin (we tailor your coverage to fit your home – not too much or too little), this guide will help you figure out how much coverage you may need. We’ll take a look at each part of the policy: dwelling, other structures, personal property, loss of use, liability, and medical payments. And if you’re rusty on what those are, we’ll refresh your memory on that, too.
Let’s do this.
|Choosing Your Coverage Limits|
|Type of Coverage||Standard Limits|
|Dwelling||Up to the replacement cost of the interior (we calculate this for you)|
|Other Structures||10% to 20% of the coverage you have for your dwelling|
|Personal Property||20% to 50% of the coverage you have for your dwelling|
|Loss of Use||20% of the coverage you have for your dwelling|
Look at coverage A on your quote or on your policy’s declarations page. This is the amount you’ll have to rebuild or repair your home after a covered event. Your home should be insured up to its full replacement cost – that is, what it would cost to rebuild your home from the ground up after a total loss. Anything less than 100 percent replacement cost coverage means you aren’t fully insured.
We calculate your home’s replacement based on its square footage, construction materials, local construction costs, and other factors, like:
You can roughly calculate your home’s replacement cost on your own by taking your home’s square footage and multiplying it by local building costs per square foot.
For example, the national average cost to build a home is $154 per square foot, so a 2,000 square foot home may cost about $308,000 to rebuild. But that’s the national average – your local building and labor costs may be higher or lower.
Remember, not all policies are created equal. Dwelling coverage can be offered on an actual cash value or replacement cost basis, and it makes a big difference in your claims payout. Actual cash value policies are cheaper, but they only cover the depreciated value of your home. It’s often not enough coverage to actually fully rebuild after a major loss.
Replacement cost policies, like the ones offered by Kin, pay for what it costs to rebuild your home entirely at the current market rate. After a total loss, your home can be rebuilt to its former glory.
If you have to rebuild your home to comply with new (and more expensive) building codes, your policy’s ordinance of law coverage may come in handy. For example, say you rebuild your $308,000 home, but you need an extra $10,000 to update its electrical panel to comply with a new code. Ordinance of law coverage can pay for that.
This is usually set at 10 percent of your dwelling coverage. So if your home is insured for $308,000, that would be $30,800 in ordinance or law coverage.
If you have an older home, it may make sense to increase your ordinance or law coverage to 20 percent in case your systems are outdated or your building codes aren’t up to date.
Coverage B pays for damage to other structures on your property, like fences, garages, sheds, carports, etc. You usually want to insure other structures at 20 percent of your dwelling coverage.
But if you have elaborate other structures on your property, like a fully furnished guest studio with a kitchen and bathroom, it might make sense to increase this coverage. Ask us about it and we can help you find the right fit.
Coverage C covers all the belongings in your home – whatever you would put on a moving truck. That includes your appliances, furniture, electronics, decor, clothing, and more.
At minimum, coverage C should be 20 percent of your dwelling coverage. So if your home is insured for $308,000, you should have at least $61,600 for your personal property. The more valuable your stuff is, the more property coverage you need.
The best way to know what your stuff is worth is to make a full inventory of what you have. As a bonus, this inventory comes in handy when you need to make a claim to replace your lost belongings.
Go room by room, take pictures, and document what’s there and what it costs. List out the major items and include receipts for big purchases like furniture or electronics. Our home inventory guide walks you through how to do it.
Once you have the total value of your personal belongings, you’ll know the exact amount of coverage you need.
Coverage D, loss of use coverage, steps in when a claim forces you to live away from your home while repairs are underway. It offers an allowance for extra living expenses during this time, like transportation, takeout, laundry, hotel stays, and more.
Loss of use coverage should be 20 percent of your home’s dwelling coverage. Again, for a $308,000 home, that would be $61,600 in loss of use protection. That’s $5,133 a month for additional living expenses for the year.
Coverage E, personal liability coverage, helps pay for your legal expenses if you’re ever sued over someone’s bodily injuries or property damage. So if your tree falls on a neighbor’s roof or your kid hits a home run through someone’s window, this can help pay for those expenses.
Every homeowner should have at least $100,000 in personal liability coverage, enough to cover common claims. If you have a swimming pool or have a high net worth and could be a target for frivolous lawsuits, it may make sense to increase your liability coverage.
Not every injury that happens on your property results in a lawsuit. There are “friendly” claims where someone you invite over may trip and fall or otherwise get hurt. Medical payments coverage, called coverage F in your policy, pays for visitors’ immediate medical expenses.
You might be thinking, Isn’t that a job for my guest’s health insurance? Yes, but if their company knows the incident happened on your property, they may require you to pay a small portion, typically $1,000, before they cover the rest of the bill.
Your policy includes $1,000 in medical payments coverage for this reason.
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