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Personal Perspective


By February 1, 2010No Comments

Because your home is probably the biggest investment you’ll ever make, you’ll want to take measures to safeguard that valuable investment. The best way to protect your home investment is through Homeowners insurance. However, you shouldn’t settle for just any policy. The type and amount of insurance you need depends on your specific home, what’s in it, and your personal requirements. But how much insurance is enough? Here are a few ways to determine how much insurance coverage you need.

Market value might not be enough. Although you might be tempted to purchase just enough Homeowners insurance to cover the market or resale value of your home, this might not be enough. Although the market value might be enough coverage for some homeowners, that’s typically not the case. Your home’s market value is not the same as what’s known as its “replacement cost.”� The replacement cost of your home is the amount of money you would need to rebuild your home to its previous condition if a loss were to occur. This amount is different from your home’s market value, purchase price, or the outstanding amount of your mortgage loan. Especially right now, when property values are falling throughout much of the nation, the market value of your home is probably much lower than its replacement value. Therefore, you should not use market value to determine how much insurance coverage you need.

Calculate the replacement cost. So, how do you figure out the replacement cost of your home? Your Homeowners insurance company can calculate how much it would cost to rebuild your home based on:

  • Square footage of your home
  • Type and quality of your home’s construction
  • Any updates, special features, or add-ons to your home
  • Quality and cost of materials used in your home

Read the fine print. Before you purchase a policy, read all the fine print so you know exactly what the policy covers. Homeowners insurance generally covers damages to your home and “other structures”� on your property, such as a shed, detached garage, gazebo, or pool. In most policies, the amount of insurance coverage you receive for other structures is 10% of the amount of coverage you receive on your home. For example, if your insurance policy covers $100,000 on your home, the coverage you would receive for your other structures would be $10,000 combined. If you believe that the structures on your property are worth more than 10% of your home coverage, you might want to request additional coverage.

Take a look at your personal liability coverage. Most Homeowners policies also include personal liability and medical expense coverage. Generally, your Homeowners insurance company will pay up to $100,000 on a legitimate civil claim against you for an injury that occurred on your property. However, this still might not be enough to cover a major lawsuit. You might consider purchasing a separate Personal Umbrella Liability policy, which can offer additional protection. This type of policy offers a higher level of liability coverage and ensures that you and your family’s assets will be protected if someone sues you for damages. Umbrella policies typically pay up to a predetermined limit, which is usually $1 million, for liability claims made against you and your family.

Protect your valuables. If you have particularly valuable jewelry, artwork, or collectibles in your home, you might want to opt for even more Homeowners insurance coverage for additional protection. You might assume your valuables are fully covered by your Homeowners insurance, but that’s not always the case. It all comes down to what’s called thesublimit — this is the limit on the amount the insurance company will pay for specific types of personal property. Although your policy’s total personal property limit might be $75,000, the sublimit for jewelry might be as low as $1,500. Read through your contract and find your policy’s sublimit for artwork, jewelry, and collectibles. If your valuables are worth more than the sublimit, you might want to purchase additional insurance to cover them. You can purchase what’s called a “floater”� and have this worked into your Homeowners policy. Insurance floaters typically cover one specific item, so if you have multiple valuables, you might need to purchase floaters for each item you want to insure.

Talk to a professional. Discuss your unique Homeowners insurance needs with one of our insurance agents. We can help you determine what kind of policy will best fit your needs and whether or not you might require additional coverage.