How Much Home Insurance Do You Need?

Home insurance protects your most significant investment: your home. Having enough coverage is crucial in the event of a disaster, like a fire. But how much home insurance do you really need? The key is to review the coverage offered by a standard policy and adjust coverage amounts as needed and get add-ons for enhanced protection. Read on to know more.

Dwelling Coverage

A dwelling is the structure of your home. The insurance company will pay to rebuild your house after a fire or other disaster or make repairs up to the limit of your coverage. If your home is underinsured, you won’t receive enough money to rebuild it fully. Your dwelling coverage should be based on the cost in your area for rebuilding homes like yours, taking local construction and materials costs into account. This coverage should be updated every year.

Contents Coverage

This part of your home insurance plan covers the cost of replacing the belongings in your home if they are damaged or destroyed. A good way to determine how much of this coverage you need is by creating a home inventory. While some home insurance policies offer “actual cash value” coverage, that may not be enough. If possible, opt for “replacement cost” coverage. This way, you will be reimbursed for the cost of buying new items, as opposed to receiving the depreciated value of what was destroyed.

Liability Coverage

Homeowners often forget about liability coverage in their home insurance policies. But it’s just as important as property coverage. Liability insurance covers the cost of lawsuits if someone is injured on your property. For instance, if your pet dog bites someone and they sue you, liability insurance will help cover your legal defense costs. It’s best to get as much liability insurance as you can afford.

Loss of Use Coverage

If the house you live in is damaged by an insured peril, loss of use coverage will reimburse you for the extra costs of living elsewhere. It may also reimburse for loss of rental income if you rent a portion of the home. The default coverage for loss of use is usually about 20% of the dwelling coverage. But that may not be enough, which is why it’s a good idea to increase your loss of use coverage.