When disaster strikes, you will want to have enough homeowner’s insurance coverage. It will help you rebuild the structure of your home, replace your belongings to defray the costs if you’re unable to live in your home, and protect your financial assets so that you’re not a liability to others. Use the following guidelines to determine the coverage and amounts that you’re going to need.
Determine How Much Insurance You Need for Your Home’s Structure
The standard homeowner’s insurance policies will provide you with coverage for disasters like damage from fire, hail, explosions, and lightning. People living in areas that are at risk of floods or earthquakes are going to need coverage for those types of disasters as well. In each case, you will want the limits on your policy to be high enough that they cover the cost of rebuilding your home.
The actual price you paid for your home, or the current market price can be more or less than the cost for rebuilding, and if the limit for your home insurance policy is based on your mortgage, it may not completely cover the cost of a rebuild. Even though your insurer is going to provide a recommended coverage limit for the structure of your house, it’s a good idea to educate yourself. To ensure that your home has the right amount of structural coverage, you should consider the following:
Main factors that will impact your costs for home rebuilding
- Local construction costs
- The square footage of the structure
To get a quick estimate for the amount of home insurance you’re going to need, multiply the square footage of your home with local, per-square-foot building costs. (It’s important to note that the land isn’t going to be factored into the rebuilding estimates). To learn about the construction costs in your community, you should call your local real estate agent, insurance agent, or builders association.
Details that may impact the cost for home rebuilding
- The style of the house, for instance, colonial or ranch
- The type of exterior wall construction-frame, veneer or masonry (stone or brick)
- The type of roof and materials used
- The number of bathrooms and other rooms
- Special features like arched windows, fireplaces, or exterior trim
- Other structures on the premises like sheds and garages
- Whether the house (or a part of the house) was custom built
- Improvements you’ve made that have added value to your home, like a kitchen renovation or the addition of a second bathroom.
Whether Your Home Is Up to Code
Building codes are periodically updated, and they may have changed entirely since the time your home was constructed. In the event of damage, you will be required to rebuild your home according to the new codes, and the homeowner’s insurance policies will not pay for that extra expense.
If you think that elements of your home aren’t up to current building codes, you should think about getting an endorsement to your policy known as Ordinance Law, which will pay a specified amount towards bringing a home up to code during a covered repair.
Whether Your Home is Older with Hard to Replace Features
Special features on older homes such as wall and ceiling carvings and moldings are expensive to recreate, and that’s one reason most insurance companies don’t offer replacement policies. If you own an older home, you may have to buy a modified replacement cost policy. That means that instead of replacing or repairing features that are typical of older homes, such as plaster walls, with like materials, the policy is going to pay for repairs that use current construction techniques and building materials.
Allowing for Possible Increased Cost of Building Materials
Inflation tends to impact rebuilding costs, and if you plan on owning your home for a while, it’s a good idea to add an inflation guard clause to your policy. So, when you go to renew your policy, an inflation guard will adjust the dwelling limit to reflect the current costs of construction in your area.
Construction costs may start to rise suddenly, after a major catastrophe like a tornado or hurricane because the price of building materials and construction workers will increase due to widespread demand. That price increase may push rebuilding costs above the homeowner’s policy limits and will leave you short at the end of the day. To ensure that you’re protected against this possibility, a guaranteed replacement cost policy is going to pay the costs to rebuild your home back to the way it was before the disaster. In the same manner, an extended replacement cost policy will pay an extra 20% above the limits, and even more depending on the insurance company.
Determine How Much Insurance You Need for Possessions
Most of your homeowner’s insurance policies will provide coverage for your belongings at around 50% to 70% of the insurance on your home. However, that standard amount may not be enough in some instances. To learn that you will have enough coverage:
Conduct a Home Inventory of Your Personal Possessions
To properly assess the value of everything that you own, it’s advised to conduct a home inventory. A comprehensive list of your belongings is not only going to help you figure out exactly how much insurance you need, but will also serve as a convenient record. In the event that any or all of your stuff is damaged or stolen by a disaster, an inventory list will make filing a claim easier for you.
When you’re reviewing your possessions, think about whether you want to insure them for actual cash value or for replacement cost.
Take Stock of Your Expensive Items
There are going to be limits on how much your standard homeowner’s insurance policy is going to cover for items like silverware, jewelry, furs, and collectibles. For instance, jewelry coverage can be limited to under $2,000, and some insurance companies also place a limit on what they will pay for computers.
You should check your policy for the limits of your coverage for expensive items. If your home inventory has items for which the limits are too low, you should consider buying a special personal property floater or an endorsement. What that will do is let you insure your valuables on an individual basis or as a collection with higher coverage limits.