How Much Homeowner's Insurance Is Enough?



Most mortgage lenders require homeowner's insurance. They want to make sure that if anything happens to your home, the balance of the loan is paid. But many people don't realize that they may need more coverage than what is required by the lender.

Homeowner’s insurance covers the actual structure of your home. Most policies also automatically cover your belongings that are in the home, up to a specified amount. But there are many factors to consider when determining whether you have enough homeowner’s insurance.

Your home itself should have enough coverage to rebuild it at current construction costs. That could be more or less than the amount you paid for it, and will likely be higher than the amount of your mortgage. Your mortgage lender will probably only require you to have insurance for the amount of the mortgage, so considering additional coverage is wise.

In the event of a disaster such as a hurricane, building costs rise. That means that your policy limits may be lower than what it will cost to rebuild. Extended or guaranteed replacement policies are available that will pay more than the standard policy's limits in such a situation.

Most policies cover your personal belongings up to a certain percentage of the coverage on the home itself. If this is insufficient, your insurance agent can sell you extra coverage. It is worth noting that the standard coverage often covers the cash value of your belongings. If you want them covered for full replacement value, you can obtain coverage for that at an additional charge.

Most homeowner’s insurance covers your living expenses should you be unable to live in your home after a covered disaster. That means that the policy will pay for a hotel room and your meals while your house is being rebuilt. If you feel that the limits of this coverage are too low, you may be able to increase them for a higher premium.

Homeowner’s insurance also covers liability to a certain extent. If someone is injured or incurs damage to their property while on your property, the coverage will include your court costs and damages up to a specified amount, typically about $100,000. Whether you need additional coverage depends on your specific situation.

To determine how much homeowner’s insurance you need, you can multiply the square footage of your home by the building cost per square foot in your local area. You can get that information from your real estate or insurance agent. You might also want to consider the risk of hurricane or tornado damage, fire hazards, risks to your personal belongings, and risks to those who visit you. These factors could necessitate additional coverage.

Adequate homeowner’s insurance is important in case anything happens to your home or belongings. Getting proper coverage when you purchase your home and keeping it after your mortgage is paid off can give you peace of mind. It's good to know that everything is covered in case of a disaster.