Whether by a falling tree, sudden and unexpected storms, or a raging fire that devours your property, your home and everything in it can be gone overnight.
Many homeowners are suddenly left without a roof over their heads. Literally. Not to mention the deep holes in their bank accounts from the cost of relocation. Others are able to stay, but lose thousands of dollars in possessions that took years to collect.
The cost to rebuild can be insurmountable, and the uninsured feel the greatest loss, years of investments burned up or blown away, homeowners left with nothing but regret.
You never think of insurance until you need it, and by that time? It’s too late.
At Lincoln Brokerage we strive to help people be better prepared for disasters. And one of the most critical aspects of preparing for a potential catastrophe is ensuring you have enough homeowners insurance.
Now, you might be thinking, “I can’t afford such a loss; how much homeowners insurance do I need?”
This article will walk you through determining how much homeowners insurance you actually need and how to adjust your coverage accordingly so you can prepare yourself for the worst before it darkens your skies and devastates you and your family.
Is Homeowners Insurance Legally Required?
No, homeowners insurance is not legally required in the United States. However, if you have a mortgage on your home, your lender will require you to have a policy in place.
And while it’s not required by law, it’s still a good idea to have coverage. Homeowners insurance can help protect your home and belongings in the event of a fire, theft, or other catastrophic events like fire, severe weather, or even fallen trees.
Imagine something happening, filing an insurance claim, and then discovering that the damage is only partly covered. Or worse, having your claim rejected because your policy does not cover it.
This stressful situation happens more often than you might think.
And while your agent may offer great recommendations for coverage, it’s also a good idea to educate yourself on the limits of your policy and discuss whether you should opt for more coverage to ensure you’re covered in the event of the worst happening.
So, How Much Homeowners Insurance Do I Need, Exactly?
Here are a few key things to keep in mind when determining how much homeowners insurance you need.
Basically, your homeowner’s insurance should allow you to:
- Replace your home in case of a disaster (dwelling coverage)
- Cover any damage or injury claims that happen on your premises (liability coverage)
- Reimburse you if you have to live somewhere else while fixing the damages (additional living expenses or ALE)
Here’s a deeper look at the types of coverages that can help keep your home and possessions safeguarded under this policy.
Your dwelling coverage is how much it would cost to rebuild your home from the ground up and should be the first place you start when determining how much homeowners insurance you need.
There are a couple of different ways to calculate this number:
- Take the square footage of your home and multiply it by the cost per square foot to rebuild in your area.
- Get an estimate from a local contractor.
Keep in mind that the dwelling coverage limit on your policy is different from your home’s market value.
The dwelling coverage limit is how much it would cost to rebuild your home, while the market value is how much your home is currently worth.
For example, if you bought your home for $200,000 and it would cost $100,000 to rebuild it, your dwelling coverage limit would be $100,000, but your market value would be $200,000.
But, it’s important to note that dwelling coverage is only for the structure of your home, not your personal possessions.
Personal Possessions Coverage
Now that you know how much it would cost to rebuild your home, you need to know how much it would cost to replace all of your personal possessions.
This includes everything from clothes and furniture to electronics and jewelry.
To get an estimate of how much it would cost to replace all of your personal belongings, you can:
- Make a list of everything you own and how much it would cost to replace it.
- Use the home inventory on the Insurance Information Institute website.
- Hire a professional appraiser.
Most homeowners insurance policies have a personal possessions coverage limit of 50% of the dwelling coverage limit.
For example, if your dwelling coverage limit is $80,000, the personal possessions coverage limit on your policy would be $40,000.
However, some things like jewelry, art, furs, and silverware may have coverage limits lower than personal possessions.
For example, if you have a $500 necklace, the most your homeowner’s insurance would pay out is $500, even if your personal possessions coverage limit is higher.
So, you may want to inquire about an umbrella insurance policy to ensure all of your personal possessions are covered.
And then there’s liability coverage. This coverage helps protect you if someone is injured on your property or if you’re sued for damages.
Most policies have a limit of $100,000 to $300,000 in liability coverage, but you can purchase additional coverage if you need it.
If you believe you’re at significant risk for someone to sue you for injury—as in you have frequent visitors or an older home—you can also purchase an umbrella policy to provide additional liability coverage above and beyond the limits of your homeowner’s insurance policy.
If you have significant assets, such as a home, investments, or savings, you might want to consider purchasing an umbrella policy to help protect them just in case you are sued.
Additional Living Expenses Coverage
Your homeowner’s insurance policy also includes coverage for additional living expenses (ALE), which would cover the cost of temporarily relocating if your home’s unlivable.
This type of coverage is vital because it can help you maintain your lifestyle while your home is being repaired or rebuilt when that nightmare scenario strikes your family.
It’s important to note that most policies have a 20% dwelling coverage limit.
For example, if you have $250,000 in dwelling coverage, your additional living expenses coverage would be $50,000.
But, keep in mind that this type of coverage only pays for necessary expenses, such as housing, food, and transportation.
It doesn’t cover the cost of luxuries like a hotel room with a view.
So, when thinking about how much coverage you need, it’s important to understand the cost of living in your area.
If you live in an expensive city like New York, you might want to consider purchasing a policy with a higher limit to make sure you’re covered in the event of long-term displacement.
No one likes to think about the possibility of their home being damaged or destroyed, but it’s essential to be prepared for the worst.
By understanding how much coverage you need and how each type of coverage works, you can be sure you’re covered in an emergency.
How Do I Get Homeowners Insurance In Brooklyn?
At Lincoln Brokerage, we’ve helped countless Brooklyn homeowners like you secure coverage for their homes and possessions. If you’re a first-time homebuyer or simply looking for a new insurance provider, we would love the opportunity to match you with a policy that perfectly fits your needs and budget.
If you have any questions about your coverage, or if you’re ready to get started, contact us for a quote today!