Choosing the right amount of homeowner’s insurance will vary based on your priorities and resources, and there are a number of factors to consider.
The housing market puts a dollar value on your house, which is what it would cost to buy an equivalent home. This may be more money than you paid, or less. Housing markets are so volatile that in some areas, the average home’s value has changed by up to 20% in a single year. When choosing an amount for your homeowner’s insurance, be sure that you take into account any market fluctuations, so you don’t accidentally find yourself under-insured if your local economy suddenly improves. This information is available from your local real estate agent or appraiser.
But what if you don’t want “an equivalent house?” If you choose to rebuild your old one after a total loss such as a fire, your homeowner’s insurance should cover the cost to do so. Depending on construction costs in your area, this could be a little more expensive than just buying the one down the street. Valuing your home in this way is known as “replacement cost,” and should also include the cost of demolition, if a fire leaves your home partially destroyed.
If you own a few old pieces of hand-me-down furniture and a bean-bag, content insurance may not be a big part of your decision, but most homeowner’s insurance quotes include coverage for contents, between 10-50% of the structure coverage, depending on the policy. Certain items are limited, so the value of like coin collections, jewelry, firearms or artwork might not be fully insured with basic homeowner’s insurance. Most insurance agents recommend that you take the time to make a detailed listing of your home’s contents, and many homeowners use a video camera to assist them. The video and list should be stored in a safe deposit box or a similar place away from the premises.
In today’s litigious society, homeowner’s liability insurance is an important part of any homeowner’s insurance quote. Most policies are packaged with a basic amount, but you may want to consider increasing this coverage if you enjoy entertaining guests at poolside, the neighborhood children routinely pick your back yard to play stick ball, or your family dog sometimes chooses random people to bite.
Finally, it is important to understand that not all losses are covered with a basic homeowner’s insurance policy. Protection from losses due to flood waters or other disasters may require special riders or policies.
Your agent will be happy to assist you in discussing all of these factors, and may be able to suggest additional ways to save you money, such as the installation of additional smoke alarms, alarm systems, or deadbolt locks, to make your home safer against loss.
To your accountant, your house may represent a dollar figure, but to you and your family, it is the place you live, your home. Protect it.