Homeowners Insurance: How Much Do You Need?

By Relocation.com Staff

After all of the work you put into saving for your new house, searching for and buying it, and then moving into it, you'd be crazy not to buy enough insurance to cover it in case of catastrophe.

However, buying home insurance is not the easiest exercise in the world because it fills so many different roles. It covers not only the cost of the house itself, but the contents inside, the lost of its use (additional living expenses you might incur), the loss of other certain personal possessions of the homeowner outside the home, as well as any accidents that may happen inside the home.

You need to keep all these things in mind when shopping for coverage.

But here's the bottom line consideration: If your home were destroyed tomorrow, would insurance rebuild the house and replace all of the contents inside? Many policies will offer this "replacement" value as the default coverage, but be sure to ask so you know for sure.

If it's not replacement value, be careful with policies that offer "fair market" or "cash value" policies. These will reimbursue your items for their current value, which takes into account depreciation and wear and tear, which might be far less than what it costs you to replace your belongings. In addition to coming up short with the dollar amount, it creates a headache for you because you'll have to document the current value of your belongings.

If you have replacement value insurance, be in contact with your agent if you make any renovations on the house that might affect its worth -- and thus its replacement value.

How Much?

Many things could affect what you pay in premium, such as sprinkler systems or fire alarms, which help protect the structure and the contents inside, and the deductible, which is the amount you pay in the even of a claim. If your deductible is higher, your premium is lower. However, make sure you have the amount of the deductible on hand in case you need to make a claim.

You want coverage for the amount it would cost to rebuild your home and replace the items inside. It's not the market value, but simply the amount it would take to rebuild the home, not taking into account the land costs. A local builder or real estate agent could help come up with an estimate of that amount. Many insurance policies will cover your household goods at 50% of the home's replacement cost; be sure to check through your belongings and determine if it's not enough coverage.

Also be sure to check out the liability coverage in your policy, which covers you if someone were to have an accident and get hurt on your property.

Things You Might Not Be Covered for

Some items are typically not covered by homeowners insurance, such as earthquakes, floods, "Acts of God," or war. Insurance can be purchased separately for earthquakes and floods (although you might be searching awhile for "Acts of God" insurance).

You should also investigate coverage for your high-value goods, like jewelry. Insurance companies will often place a ceiling on how much they'll cover, so you'll need to investigate whether you need a special add-on, or "rider," to your coverage.

Done? Not quite. Create an inventory of all your stuff to ease the claims process. The Internet has now made this easier, which sites like knowyourstuff.org and makelifeeasy.com offering software that makes it easy to inventory all your stuff by room, with purchase dates, replacement costs and serial numbers. You can also upload photos to create a visual record.

In addition to this, take a videotape of the inside and outside of your house as further proof of the value of your things.

To find a good insurer, ask family and friends for recommendations. If you like your auto insurer and they offer home protection, check them out as well. Also, there are many websites now that offer quotes; use them to get a good idea for what's a fair price, and go from there.