Home insurance comes with many different parts. Overall, this insurance is in place to protect your home and your family in case of an accident or disaster. But choosing the right home insurance policy can be stressful. Where do you start? How much home insurance do you need?
Calculating How Much Home Insurance You Need
Before settling on your deductible, it’s important to know how much insurance your home needs. While home insurance isn’t required by state or federal laws, it may be required by your mortgage lender. Beyond this coverage, however, you will need to review your policy to make sure it covers everything you need it to.
A basic home insurance policy should include:
Dwelling Coverage: Dwelling coverage provides compensation if the physical home and its attached structures are damaged due to a covered incident. Incidents that are usually covered include fire, smoke, lightning, hail, wind, theft, vandalism and more.
Personal Possessions Coverage: Personal possessions coverage provides compensation if your personal belongings are lost or damaged due to any of the incidents also covered under your dwelling coverage.
Additional Living Expenses: Additional living expense coverage (ALE) assists with the costs of temporarily moving elsewhere while the home is being repaired or rebuilt after a disaster.
So how much of this coverage should you buy? That depends on the replacement value of your home. You should purchase 100% of your home’s total replacement cost value in home insurance. This cost is different than the price it went on market at or the price you paid for it. The replacement cost value of your home is the total amount of money it would take to rebuild the home if a disaster destroyed it. This number can be calculated by considering the square footage of the home and the value of its fixtures and amenities.
You will also want to make sure that you have enough personal possessions coverage for your belongings. Certain items such as jewelry, paint and furs have limited coverage under a basic home insurance policy. You can purchase additional floaters to help cover expensive items such as engagement rings and fur coats.
If you’re not sure about calculating the value of your home, you can always seek professional assistance to help with your finances. It’s crucial to have the right policy, otherwise you could be left with thousands of dollars unexpectedly in repairs.
Deciding Your Home Insurance Deductible
Now that you have a policy you’re happy with that covers your home, belongings and family, it’s time to set your deductible. A deductible is the amount you will have to pay out of pocket after filing a claim. When you file a home insurance claim, an underwriter from the insurance agency will investigate the claim to calculate how much compensation you will receive. Your deductible is essentially the remaining balance.
You can choose a higher deductible in exchange for lower monthly premiums. Keep in mind that this means that you will pay more out of pocket after a claim, however. Make sure to speak with your insurance agent about what deductible is good for you. Depending on your policy, deductibles range between $500 and $100,000, depending on your home’s value. Higher deductibles are generally a percentage of your home’s value. If your home is worth $300,000 at 2%, your deductible will be $6,000.
Also keep in mind that these numbers are subject to change. Although the percentage of your deductible will stay the same, it will adjust with changes in value to your home. Your premiums can also change from other factors.