Published: November 2015
Q: How much homeowners insurance do I need?
A: The types and amount of coverage you need depend on a number of factors. These include your home's location, size and amenities. There's no single "rule of thumb" that works for everyone.
Also, how much you pay for your house may not be a key part of the insurance equation. "The formula for determining adequate insurance takes many other things into consideration," says Kevin Greenwell, an Allstate agency owner in Estero, Florida.
Geographic location often affects the type of risks your home is exposed to. For instance, if you own a home in Miami, you may want different insurance coverage limits than those set by the owner of the exact same home in Boston. Why? Dwelling coverage limits are based on replacement cost, which can vary by location due to different construction or material costs in each area, Greenwell says.
Another factor is the cost of labor and materials in different geographic areas. Since homeowners insurance typically helps cover the cost of repairing or rebuilding a home if it's damaged or destroyed by a covered peril, the amount of insurance you may need partly depends on what it would cost to complete the work in your town. Labor costs, in particular, vary significantly in different markets.
And why wouldn't you simply choose dwelling coverage limits that match the purchase price of your house? "The actual hammer-and-nail cost to repair or rebuild your home could end up being less than what you paid. Or, in some cases, it could actually be more costly to rebuild your home," Greenwell explains. A local agent can help you understand the options so you can choose the coverage that's appropriate for you.
Does your home sport a custom tile roof? That may cost more to repair or replace than a house with a standard asphalt roof in the event of damage from hail or another covered peril. The same is true of interior details: Things like crown moldings, hardwood floors, a gourmet kitchen with granite counters or a spa-quality bathroom need to be factored in when determining the appropriate amount of insurance for your home, says Greenwell.
When choosing coverage limits, you'll likely want to consider items like a pool, shed, fences and other structures on your land that could potentially sustain damage so you can make sure your coverage limits meet your needs.
Personal property coverage is part of a standard homeowners insurance policy. If your clothes, appliances, electronics, furniture and other items are damaged, stolen or destroyed during a covered event like a break-in or severe storm, this coverage may pay to repair or replace them.
Generally, personal property coverage is set at a percentage of your home's "dwelling" coverage limit, says Greenwell. "However, this is an area you may be able to lower if you know you have less valuable belongings and want to lower your insurance costs," he says.
Keep in mind you may want to purchase scheduled personal property for more expensive items such as jewelry, art and collectibles to make sure your limits are high enough for these items.
Many homeowners insurance policies include $100,000 in liability coverage, as well as some coverage for medical payments. Liability coverage may help pay for legal expenses and other costs if you were sued by someone who was accidentally injured on your property and later found legally responsible for their damages.
In some cases you may want to increase your liability coverage. "If you have a lot of assets, you could, unfortunately, be a target for lawsuits simply because people assume you have money to pay for damages," notes Greenwell. Another reason you may want to consider increasing your liability limit is if you have a backyard pool or trampoline because those types of items may increase the risk that a visitor is injured at your home.
It's fairly inexpensive to increase liability coverage on your homeowner's policy, says Greenwell. For even greater liability protection, you may want to consider purchasing a personal umbrella policy. Umbrella coverage typically offers at least a $1 million limit and kicks in after the limits of your homeowner's policy are exhausted.
The bottom line is that there are many things to consider when deciding how much coverage is right for you.
"Our goal is to make you aware of these considerations, present you with your insurance options, and help you make sure you are properly insured," Greenwell says.