How much homeowners insurance should I have?
One of the questions we get most often from customers is how much homeowners insurance should I have? When people ask this, they generally expect that we will give them a number similar to what they paid for their home. While that is an ok place to start, the true answer is more complex and includes determining how much you will need in each of the three main elements of a homeowners policy. In this blog we will break down each of those three elements and how to calculate what you need.
The first is how much dwelling should you have, or how much would it cost to rebuild your house? A lot of people tend to get this confused with the market value of their home. They will "Hey, I bought my house for $150,000. That's what my insurance should be, right?" That's actually not true. Insurance companies view the replacement cost is how much it actually will cost to replace your house from the ground up, and they do not factor in how much you paid for it or how much you can sell it for. We see this a lot in downtown Lancaster, even downtown York, where these older homes are built in the early 1900s, they have strong brick walls, and they're sold for $150,000, but the insurance replacement cost is usually around to $500,000. The quick response we then hear is "Why in the world am I paying for so much more insurance?" It's because if home catches on fire and burns to the ground, it's going to cost a lot more money to build it back up then the new frame homes do.
Some of the factors that are used when figuring out the replacement cost value is how much square feet the house has, what the house is made out of (brick, frame, joisted masonry). Insurance companies also take into consideration the customizations of the home (designer bathrooms or kitchens), how many garages the home has, decks, patios, and all of the other features that make the home uniquely yours.
Another element to the building coverage is the other structures, or Coverage B. Other structures is a percentage, usually around 20% of the dwelling amount. For example if the replacement value of your home is calculated at $320,000, you will be given $64,000 of other structures coverage. This is meant to protect things such as sheds, barns, fences, pools, or things that are of value that are not attached to your home.
The second element of a homeowners policy is your personal property. The personal property is literally all of your things in your house. The rule of thumb we use the insurance world is if you take your house and you flip it upside down and shake it, everything that falls out is considered your personal property. The things that don't fall out are part of the structure and should be included in the dwelling amount. Personal property includes your furniture, clothes, electronics, appliances, etc. In you homeowners policy you can find this listed as “Coverage C”.
Homeowners policies have some coverage for valuable items built into them. The limits are generally pretty low so if our clients are collectors of coins, guns, art, or have expensive jewelry, we advise them to schedule them on their homeowners policy. To schedule something on your insurance policy simply means that you define an item with a description and appraised amount that is not subject to the defined limits on your policy. For example if you own an engagement ring that is appraised at $15,000. Standard homeowners policies usually have coverage for jewelry capped at $3,000 per item, which is nowhere near sufficient for your ring. To make sure it is protected for the full value you would provide your agent with a detailed description of the ring along with an appraisal and your agent would “schedule” it on your policy. It is an additional cost to schedule items on your policy but depending on the items value, it is totally worth it.
The third and most important part of a homeowners' policy is the liability coverage. It's also the part that people generally don't think about. Liability coverage is coverage for bad things that happen to other people because of you. Say someone is at your house and they slip and fall, or they get bit by a dog while visiting, or anything else that injures them at your house. This liability also follows you as you are out and about in your everyday life. For example, if you were playing golf and you drive a golf ball through someone's car window, or you hit somebody, or anything else someone may sue you because you injured them. We generally recommend at least $300,000 - $500,000 as a starting point but encourage people to asses their risks and reevaluate each year. The liability coverage also covers you as you travel the world is not limited to just your house or the United States, which is a nice little feature.
Feel free to give us a call at Susquehanna Insurance, we bring clarity and simplicity to your insurance needs.
www.susquehannains.com
717-290-7780
[email protected]
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