How Much Do I Insure My Home For? What Is The Reconstruction Cost?
A common google search: How much insurance should I have on my home?
When you are trying to insure your home, the first thing you will be asked is how much you want to insure it for. What your agents means to ask is, "If your house burns down, how much money will you need in order to rebuild it?" After you answer that question, you have to consider all of the other coverage limits that default based on the dollar amount that you chose to insure your house for.
The cost to rebuild your home is its "reconstruction cost". This can be very different from the estimated market value or actual purchase price. In most cases, it costs more to rebuild the home you own than it cost to buy it (this will change eventually, as the housing market recovers). As far as your policy is concerned, this amount of coverage is referred to as "Dwelling Limit" or "Coverage A". And that is just where the conversation starts.
How much home insurance is right for you?
No one actually KNOWS for sure. Your insurance agent should work with you to estimate the replacement cost for your home and to adjust your policy limits from time to time as needed. We've got some real nice software that gets us into the ballpark but the software is only as good as the information it is given so...
It is critical that you provide your agent with accurate, up to date information about your home.
If your dwelling limit accurately reflects your home’s true replacement cost, some policies will pay more than the stated limit if a covered loss is greater than the limit on your policy. This is known as Extended Replacement Cost. It's designed to kick in if unexpected costs come up which cause reconstruction to be more than anybody's software could account for. You can set this Extended coverage to be 25% or 50%, but there is even a policy we offer that automatically includes up to 200%.
Other Structures, or Coverage B
You may have a shop out back, a whole lot of fence, a pool or pool house... any structure that us not attached to your house is considered OTHER STRUCTURES. This coverage usually defaults at 10% of the Dwelling coverage you choose, and if you've got some other buildings on your property, you want to mention these to your agent. That 10% default limit might not be enough, and you CAN bump it up.
Personal Property, or Coverage C
Personal Property refers to your furniture, clothes, dishes, decor etc. This limit is usually defaulted to 50% or 70%. If you lose EVERYTHING you've got, you'd be amazed at what it costs to get it all back. You want to buy your things brand new, even if they were very old.
Coverage D, or Loss of Use
This coverage is also defaulted at a percentage of your Dwelling coverage. This is the amount you are going to get if your home is uninhabitable due to a covered loss and it is given to you to pay for a new place to stay until you can go back home.
About Replacement Cost:
Make sure your policy includes replacement cost coverage for contents (this is personal property like clothing, furniture, appliances, and other personal property inside your home)? If not, you can almost always add it by endorsement. The cost is small, the protection valuable. Replacement Cost Coverage pays for losses to your possessions at the cost of brand new items. Without this option, a covered loss to your personal possessions would be depreciated by their age and condition, reducing the size of your claim settlement. In Ca, you should be offered replacement cost on your personal belongings, but some policies designed for HIGH RISK may not offer it. Try your best to get it if you can.
If you have an art collection, antique furniture, jewelry, firearms or other valuable possessions, talk to your agent about this, you may want to look at the scheduled property endorsement options to adequately protect your investment in these items. The cost is modest for the extra protection, and often the deductible is waived if you've got them "scheduled".
Consider whether you need more coverage for personal property (contents) than your policy provides.
As mentioned above, personal property coverage is usually defaulted at 50-70% of the coverage limit for the dwelling (or Coverage A).
You should inventory your home. Almost no one does this, but everyone should. Prepare an inventory of personal property items, update it periodically, and keep it in a safe place outside your home, such as a safe deposit box at your bank. It will save you hours of time trying to list everything damaged or destroyed if you need to make a claim. It will also help ensure you don’t forget some items. At Executive Edge, we can advise you on ways to simplify the job of preparing a personal property inventory such as videotaping each room with descriptive information on the sound track. We provide downloadable excel sheet that is really handy. Click HERE to download it.
Coverage E, or Personal Liability
Besides making sure you have enough protection to cover possible damage to your own home and contents, you should also evaluate your exposure to liability risks. These result from damage to the property of another, or injury to a person, not a member of your household, for which you can be responsible.
In recent years it’s become common for homeowners to be sued for injuries or damages to others, even when there is no evidence of negligence by the homeowner. The reality today is if you have any appreciable assets, you are exposed to the risk of being sued. Even if you ultimately prevail in court, your legal fees and the months or years of worry and uncertainty can be a terrible burden on you and your family.
The Personal Liability coverage provided by your Homeowners Policy provides a default limit of $100,000 but can be bumped up to as much as $500,000. We recommend increasing this protection with a personal umbrella policy. Not only will it increase your premise liability coverage, but also your auto liability coverage. Limits are available from $1 million to $10 million and beyond. The cost of this coverage is usually very reasonable, somewhere around $200 per year depending on how much you own in the way of assets like cars and homes.
Only You Know When You Have Enough Homeowners Insurance
After all is said and done, you are the one who knows what all you've got.
Here are some steps you can take to reduce the danger of being seriously underinsured:
If you have questions or concerns about the limits in your policy, let your agent know what those concerns are. Insurance policies follow a default formula to calculate coverage & are based on percentages of that initial "Coverage A" or "Dwelling" coverage you chose.
Read your policy. Certain property, such as jewelry, and certain perils, such as earthquake or flood, are better insured separately. Knowing what is covered and for how much will help you insure properly. If there is anything in your policy you don’t understand, contact us at 209.385.3343 and ask for some help.
Review. At each annual renewal of your policy, you receive a new Policy Declarations page showing limits of coverage and optional coverage. Review this information. If you do any significant remodeling or add a family room, extra bedroom or bathroom, etc., tell us about these changes so your coverage limits can be adjusted to cover the improvement.
Consider carefully whether your policy provides all the protection you need. Does it provide coverage for extra costs resulting from building code changes? Does it automatically increase coverage limits annually to keep pace with inflation? Does it provide additional funds if the cost of rebuilding your home exceeds the policy limits?