How Much Homeowners Insurance Coverage Do I Really Need?

Your home is probably the single biggest investment that you will make in your lifetime. What do you do with such big investments? You protect them! Now, I am not talking only about making sure that you are staying on top of all the repairs that need to have done around the house and possibly installing certain security systems and similar things. While those are undeniably some great steps that you should take, the truth is that you will need to step up your game and do something else to protect your investment.

In case you couldn’t have guessed it, I am talking about getting homeowner insurance. You have probably thought about this already, and there’s no doubt in my mind that you have wondered about the actual price of home insurance that you should expect to pay once you finally decide to take this step. Well, if that’s what you are wondering, then you’ve come to the right place since that’s precisely what we are going to be talking about today.

If you are trying to decide whether to get this coverage or not, let me make it simple. If you have a mortgage, then your lender will require at least some minimum coverage. If not, then it’s all up to you, but as I have mentioned earlier, this is the investment of your lifetime, and securing it is undoubtedly an amazing idea that you shouldn’t take for granted. In any case, let us quickly check out what homeowner insurance actually is, and then we’ll proceed to determine how much you need and how much it might all cost you.

Homeowner Insurance

What Is Homeowner Insurance?

Basically, this is the type of insurance that safeguards your property, as well as some of your belongings, from certain mishaps that might occur. Depending on the coverage you get, your policy might include damage from aircraft, vehicles, vandalism, fire, water, windstorm, riots, thefts, and many other perils. Of course, you shouldn’t make the mistake of thinking that your standard policy will protect you against all of these, which basically means that you should be careful when choosing your particular policy and that you should think about getting some additional coverage if necessary. That will ultimately depend on the area you live in and the mishaps that you think you need to be protected from.

How Much Do You Need?

Now, deciding how much coverage you actually need can most certainly be tricky for most people. This is especially correct if you are a first-time homeowner and you never had to deal with this in the past. As I have mentioned earlier, if you have a mortgage, your lender will require at least the standard coverage, but that doesn’t mean that you should rely solely on the required things. Instead, you should think about getting a different policy and protecting your property against some more dangers that might be lurking.

Before we get to explaining how much coverage you might need, let me make one thing clear. If you don’t have a mortgage, homeowners insurance becomes an option rather than a necessity. In other words, if you don’t have a lender that will require this type of protection, you can choose not to get it. Yet, most homeowners decide to get it anyway, since leaving things up to chance can be quite dangerous, and leaving your asset unprotected is never quite a good idea.

unprotected asset

So, to put things simply, even if this insurance is not exactly required out of you, I would advise you to get it in any case. After all, we are talking about your largest asset here, and I believe you understand why leaving it uninsured is not a wise move. Since we have made it clear that you will definitely need this type of insurance, let us now proceed to take a look at how much coverage you might actually require.

There are many things to keep in mind when trying to make this decision, and the truth is that they all depend on your specific situation. This means that there is no general rule on how much coverage you will precisely need since the amount can differ from one property to another. Yet, this most certainly doesn’t mean that there aren’t some general considerations to make and things to keep in mind when making this decision. To put it differently, even though this decision can differ from one homeowner to another, the truth is that there are some rules that you should follow.

This might help you make your final decision on how much coverage you actually need:

how much insurance coverage

Since I have mentioned those general rules, let me explain them to you. Basically, you should get enough coverage to ensure that you’ll have the amount you need to do certain specific things if anything unpredicted happens to your home. If you aren’t quite sure which specific things I am talking about, let me explain them. You should get enough coverage to be able to:

  • Rebuild your home if it happens to be necessary
  • Replace your belongings that might get destroyed
  • Cover the living expenses for the time that you might need to spend outside your home
  • Cover any property damages and repairs that you might need to have done

When you take a look at those general rules, things will definitely become much clearer to you. Yet, you might still not be sure about the actual amount you should get, which means that you might need some more help making that decision. If that’s the case, then I suggest you follow the 80% home insurance rule that will undeniably help you get adequately protected regardless of what might happen in the future. This rule states that you should buy insurance equal to 80% of the total replacement value for your home. If you do this, your insurer will fully cover any expenses and costs of damage that might occur for one reason or another.

Dragan Sutevski

Posted by Dragan Sutevski

Dragan Sutevski is a founder and CEO of Sutevski Consulting, creating business excellence through innovative thinking. Get more from Dragan on Twitter. Contact Dragan