How Much Homeowners Insurance Do I Need?

If there’s any kind of insurance coverage you might want to skimp on, don’t make it homeowners insurance.

If you’re unprepared to cover a catastrophic occurrence to your home, you could lose everything – your personal possessions, your access to your basic home utilities you need for daily living, to your home itself. Plus, what can you do if an accident happens in your home and you’re found personally liable?

Homeowners insurance can cover all these situations and more. It’s difficult to imagine the devastation when a catastrophe happens and you just don’t have enough coverage. Sure, some of the reconstruction will be covered, but without resources to replace your belongings or finish a build, as well as cover the costs of staying elsewhere while you rebuild – you could be out hundreds of thousands of dollars.

We’ve seen it before, and it does happen! It’s best to make the safest bet rather than wager you won’t experience a fire, tornado, damaging storm, break-in or another catastrophic event that leaves you without the protection you need.

The right agent will help you find the amount of coverage you need, but it’s always good to educate yourself to make sure you have the homeowners insurance coverage needed to get you through any situation. Being underinsured can be disastrous if you need to rebuild or incur significant expenses.

Let’s start out with the different types of coverage. We’ll go through the list from top to bottom, starting with your dwelling amount.

How much dwelling coverage do I need?

First things first: when it comes to homeowners insurance, market value vs. reconstruction costs are two different things. You’ll need to figure out the reconstruction cost of your home, and this number will not be the same as your home value.

Why is this? The cost of raw materials, gas or labor could go up even as property values decrease over time. We recommend assessing your reconstruction costs every few years just to be on the safe side, so we can talk about increasing your coverage if necessary.

Every carrier has a different method for calculating your reconstruction costs. These can vary, and we can talk with you about how to do an assessment based on the cost of materials and labor in your area.

When it comes to reconstruction, you must be prepared. Knowing how your costs change over time is integral to making sure you have the right coverage.

You must also consider the needs of your family. The changes you make to your home after reconstruction cost might increase the value – for instance, if you make changes to your kitchen or you decide to add additional rooms, etc., this is going to affect the replacement value of the home. Adding special features to a kitchen will obviously increase your costs – but if your family has grown over time or your needs have changed (e.g. special accessibility needs, etc.) you’ll need to account for this. Also, appliances and kitchen amenities are becoming more modern with time. If you need to replace your kitchen, you’ll want modern appliances – not stuff from the 80s.

You may have to pay more for the materials used to replace your home and let’s not forget the increased cost of building materials or features of your home that are difficult to replace. Labor may cost more, and you may need to address building ordinances that didn’t exist during the original construction of your home. Our agents are familiar with the way municipal home building codes can change over time, so it’s a good idea to discuss this with them when you get a new policy or revisit an existing one.

How much personal property coverage do I need?

What is considered personal property or contents? If you can put your house in the palm of your hand, take the roof off, turn it upside down it should be anything that can fall out. If your home is damaged, you’re also going to need to replace your stuff. To do that, you’ll need to know how much your personal property costs.

The easiest way is to work with your agent to make an inventory of your stuff, room by room. Your agent can give you some ideas to work with, but no one knows better than you the cost of individual items. We recommend documenting and making a note of the value of all your belongings as you go.

Your personal property and contents can be covered in one of two ways:

Replacement Cost Coverage From

There are two types of replacement coverage for your belongings. Replacement cost value pays for what it will actually cost you to replace an item.

Actual Cash Value Coverage From

The actual cost value reimburses the depreciated value of your item. By working with replacement cost coverage, you can ensure you’ll have enough cash to repurchase your items should you need to.

Note that there is a coverage ceiling, so expensive stuff like family heirlooms may not be covered and you may have to take out additional coverage.

How much liability insurance do I need?

We recommend you buy up on this because you never know when an accident is going to happen. Liability covers you if someone is injured on or in your property. This covers everything from a fall down the stairs to your pet attacking someone in your home (which happens more than you think!) to incidents on your property.

In the case of such an incident, you don’t want to be held medically liable, and potentially out several hundreds of thousands of dollars. Depending on your situation, we may also recommend an umbrella policy for that extra layer of security against liability.

How much loss of use coverage do I need?

Let’s say you lose your home in a fire (God forbid!) It’s very likely you’ll need to stay in a hotel or eat out at restaurants because you won’t have access to your kitchen.

If you’re out due to expenses incurred, then you’ll need to be reimbursed. Your agent can help you figure out the right kind of coverage for your situation. What you’ll be paid for depends on your extended dwelling coverage.

Remember: When it comes to buying homeowners insurance, more might be best! The last thing you want is to go without the appropriate coverage. We can work with you to help you find a plan that will give you the coverage you need, so you can make sure you’re protected.