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How Much Homeowners Insurance do I need?

Insurance is required in order to cover not only your liability to others, but also your personal belongings, your property’s structure and the cost of extra living expenses in the event your property is damaged and you need to live in a hotel until it’s repaired.

The Structure

It’s important to get adequate insurance in order to cover the cost of having to rebuild your home in case it’s destroyed. Make sure that you don’t base the rebuilding cost on the amount you paid for your property, that the coverage is enough to cover current construction costs and that you do not include the cost of the land.

To calculate exactly how much insurance you require, you should multiply the local building costs by the total square footage of your property. To learn more about how much the builders in your area may charge for rebuilding your home, be sure to get in touch with them as soon as possible. If you want, you can also call your insurance agent or local real estate agent and ask them for some advice in this regard.

Top factors that determine your property’s rebuilding cost:

How Much Homeowners Insurance do I need?

  1. Whether parts of your property or the property itself were custom built.
  2. Arched windows, exterior trim, fireplaces, etc.
  3. Roof type and materials used for it.
  4. Number of rooms and bathrooms.
  5. Your property’s style.
  6. The type of exterior wall your home has.
  7. The structure’s square footage.
  8. Local construction costs.
  9. Changes to your home, such as enlarging the bathroom or adding a second bedroom, etc.

If you already have a typical homeowners insurance policy, then it protects you from disasters like theft, explosions, hail, but also lighting and fire. On the other hand, damage that results due to poor maintenance, earthquakes and floods is not covered.

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Liability to others

Depending on your policy, it may also include coverage for property damage or bodily injury, meaning that you are protected from losses in the event your family members, you personally and even your pets, cause damages to other individuals. The policy covers the cost for the damages a court may rule you to pay and the cost of defending you in court as well.

A standard homeowners policy provides at least one hundred thousand dollars worth of liability insurance.

Extra living expenses in the aftermath of disasters

By having a standard homeowners insurance policy, you’re going to be covered for any expenses made towards your relocation and that of anyone living in your home after it was destroyed or made uninhabitable after a disaster. Some of the costs covered include restaurant meals, hotel bills and a wide range of other living expenses.

In general, the amount of extra coverage for living expenses varies from insurer to insurer, but the majority of polices provide about twenty percent of the total amount of insurance you have on your property. If you’re lucky, then you may find that there are certain companies offering unlimited coverage under such circumstances, but only for a certain amount of time. In case one or more rooms of your home were rented out, then this policy will also pay you for loss of income.

Using endorsements/floaters to insure high-value items

There are certain types of items that your insurance policy may cover up until a certain limit (usually one or two thousand dollars) some examples include furs, silverware and jewelry. If you own laptops or computers in general, then some insurers may also place a certain limit on the amount they’re going to pay for them.

For some people, these limits are low, but don’t worry about it, since you can purchase a special endorsement or personal property floater (they come with no deducible). By getting one, you can easily insure your items as a collection or individually. So basically, you’re going to have to pay a premium that’s calculated based on where you live, the item’s dollar amount and item type.



 Actual cash value vs. Replacement cost

If your home or belongings are insured for their cash value, then the policy will pay to replace them within the limits of your policy. Depreciation is also going to be factored in the total cost. However, you can also choose to get a replacement cost policy, meaning that you’ll be paid the cost of replacing your belongings or property within the limits of your policy.

Let’s say that you have a TV which is destroyed after it falls off the wall. If your policy is an actual cash value policy, then you’re going to receive a partial payment from the insurer, since your TV is already old and used. If you’ve purchased a replacement cost policy, then the insurer is going to pay you to have your TV replaced with a brand new model.

In terms of cost, the price of a replacement cost coverage policy is approximately 10% higher compared to its counterpart.

Your personal possessions

The majority of standard homeowners insurance policies cover the loss or destruction of your belongings for about fifty to seventy percent of the total insurance you have on the dwelling or structure of your property.

However, it’s recommended that you carefully determine the value of your belongings to see if the policy provides adequate coverage. If you realize that you do indeed require extra coverage, then make sure to get in touch with your insurance agent as soon as possible.

Older properties

Replacement cost policies may not be available to those owning an older property and therefore they may need to purchase a modified replacement cost policy. However, keep in mind that features typical to older homes are only going to be replaced or repaired using current building techniques and materials.

It’s important to keep in mind that each insurer has its own ways of insuring older properties. So while others refuse to insure the property for its replacement cost, some will do this as long as they deem the home’s condition to fall within their standards.

In the event you aren’t able to insure your home for its replacement cost or the cost of replacing it is very high, then you may be able to replace it with a home of similar size as long as the coverage provided by your insurance policy allows you to.

Inflation guard

If your policy has an inflation guard clause, then this helps automatically adjust the property’s limit upon renewing your policy, so that it reflects actual construction costs in your particular area.

Building codes

It’s very well known that building codes can change fast and without notice. This means that if your property needs to be rebuilt, then it needs to meet the standards imposed by the new building codes. Usually, a guaranteed replacement cost policy and also your typical homeowners insurance policy won’t cover the extra costs associated with the new building codes. However, some insurers may provide a Law or Ordinance endorsement that may cover part of these costs.



Extended replacement or guaranteed cost coverage

In the aftermath of a tornado or a hurricane, the services of construction companies are in high demand. Because of that, they may increase their prices, meaning that your homeowners policy may not be enough to pay for the necessary repairs. To ensure you never find yourself in such an unfortunate situation, you should purchase a policy that pays above the standard caps of your current policy.

By opting for an extended replacement cost policy, you’re generally going to receive up to twenty percent more money compared to your initial policy’s limits. However, if you have a guaranteed replacement cost policy, then the insurer is going to pay you as much as it’s needed to rebuild your home exactly the way it was before disaster struck.

Excess liability or umbrella coverage

If you want to effectively protect your assets, then you should purchase an adequate amount of liability insurance. Some people’s property and/or possessions may be worth more than their policy’s limits, in that case they  should purchase an umbrella policy.

This type of coverage provides them with a lot more coverage and they’re usually going to kick in after your liability insurance has been exhausted. Keep in mind that this type of coverage is separate from the standard homeowners insurance policy and as such, it constitutes a separate purchase. On top of providing you with greater coverage, it can also protect you from invasion of privacy, slander and libel. As you may very well know, these are not included in a standard car policy or homeowners policy.

Last but not least, you should know that the cost of your umbrella policy is determined by the type of risk you represent and the amount of underlying insurance you have. If your underlying liability coverage is higher, then you’re going to pay less for the policy. The reason for that is because this way the chances of requiring the extra insurance are low. If you own a vehicle or a home, then the majority of insurers require that you have at least 300 thousand dollars in primary liability coverage.

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View the Coastal Insurance Video Library  to find helpful video’s explaining everything from, how to save money on Homeowners Insurance to an easy explanation of Flood Insurance. Call today (631-782-3175) to speak with one of our underwriting experts.  Fast Quotes, A.M. Best Rates & Free Advice.


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