One of the largest investments typically made during one’s lifetime is the purchase of their family’s home. The simplest & most direct way to protect one’s home (and its underlying financial investment) is the purchase of homeowner’s insurance.
But how much coverage does one really need? The amount of homeowner’s insurance a property owner needs depends upon several key factors.
First, though, if you are a homeowner with existing liens against the property in question, the minimum amount of required insurance will be set forth by the lending institution(s) holding the debt. But; however, it is essential to note that the minimum insurance lenders require only protects their investment in your property.
The reality homeowners must protect all property and assets, which may require insurance that exceeds the lender’s minimum coverage. To purchase the right insurance coverage, homeowners should understand –
- The type and the amount of insurance coverage that will be needed.
- The deductible for the policy that fits a homeowner’s budget.
Homeowner’s Insurance Basics
The term homeowner’s insurance policy references a set of insurance policies that protect one’s home, contents, and related structures. It typically includes –
- Dwelling Insurance – covers the main house and attached structures, which might include a garage, etc.
- Personal Property Insurance – covers the home’s contents, like furniture, etc.
- Other Structures – covers those structures that are not attached to the main dwelling, like a fence, etc.
- Personal Liability – protects a homeowner should an individual injure themselves on the property or in the home and files a lawsuit.
- Additional Living Expenses – covers a homeowner’s living expenses should they become displaced by a qualifying cause.
- Medical Expenses – covers medical expenses for those injured on a homeowner’s property.
Additionally, homeowners can opt to supplement a typical home policy by adding optional coverage for –
- Floods, which is typically available through FEMA’s National Flood Insurance Programs.
- Earthquakes – usually available through a separate endorsement.
Prudent homeowners also consider purchasing an Umbrella policy as this insurance kicks in after a standard policy hits its limits.
How Much Homeowners Insurance Do I Need?
According to the insurance experts at the Insurance Information Institute, here are suggested coverage amounts concerning home insurance –
- Dwelling Insurance – the recommended coverage amount varies and is contingent upon the home’s cost to rebuild.
- Personal Property Insurance – 50 to 70% of the dwelling’s chosen coverage amount.
- Other Structures – 10% of the coverage amount chosen for the dwelling.
- Personal Liability – the recommended coverage amount varies and is contingent upon the homeowner’s total assets’ value.
- Additional Living Expenses – 20% of the coverage amount chosen for the dwelling.
- Medical Expenses – the recommended coverage amount varies and is based on the homeowner’s lifestyle and how they choose to use their property.
As always, if you have any mortgage or refinance questions, please reach out – we’re here for you!
