How Much Homeowners Insurance Should You Get?
Buying a home is daunting, and it becomes even more so when you consider homeowner's coverage! A common question we here is "how much homeowners insurance should I get?"
The point of homeowner's insurance is to allow you to rebuild your home in the event of a major disaster. If you have a house fire, for instance, you will need not only the funds to help you pay off your mortgage while you look for another home or begin the process of rebuilding. You will have to account for other expenses as well. All of these should be factored into your bottom line decision for coverage.
Take into account the replacement cost of your house. This is not just your mortgage! How much will it cost to pay off the mortgage and rebuild a home from the ground up? The best way to do this is to take the appraisal value of your home, add the cost of your outstanding mortgage, and consider that number to be your basic replacement cost. From time to time you will need to adjust for inflation and fluctuations in the real estate market, and increase your coverage accordingly.
Secondly, consider the contents of your home. If your home is completely destroyed, it's a safe bet that the contents will be destroyed as well. How much will it cost to replace them? Go through your home and make a rough estimate of the furniture and valuables. Consider everything, from the refrigerator in your kitchen to the computer in your office. Don't forget the clothes in the closets, either! In the worst case scenario, all of it will have to be replaced.
In the third step, take into account where you will live while your home is being rebuilt. If you rent another property or stay in a hotel, you will need the money to make that happen. Also consider transportation costs to and from work, as well as meals while you are away from a working kitchen.
Finally, consider your liability to anyone else. If someone is hurt while on your property - say, a firefighter who is injured while fighting the fire that destroyed your home - you need enough coverage to pay the basic medical bills for that person, as well as any legal fees that might come up.
Add all of these factors together, and that is how much money you need to consider for homeowner's insurance. Don't skimp on the number! Hopefully, you will never have to make a single claim on that policy, but if the worst happens and you must turn to your homeowner's insurance to get you through, make certain there will be enough. As always, it's better safe than sorry!