At an agency where our focus and specialty is homeowners insurance one of the most common questions we receive is ” How much homeowners insurance coverage do I need?” This is an easy question to answer once you understand what your home insurance is supposed to cover.
How much homeowners insurance coverage do I need?
The coverage for your home is called dwelling coverage, or coverage A ( see Understanding Your Homeowners Insurance Quote). This is the figure you are looking at when determining how much coverage you have or are being quoted for your home itself. This coverage is meant to cover your home at replacement cost.
Replacement Cost
When you ask the question “How much homeowners insurance coverage do I need” you will be told by all insurance agents that you need replacement cost coverage. Replacement cost is the amount of money it would take to rebuild your home completely as it is now.
Most homeowners insurance companies will require a replacement cost estimator to be completed before your policy is every activated. Make sure this is done correctly. As long as the information entered into this calculator is correct then your agent will know how much coverage you need. The information entered is the physical attributes of your home, such as square footage, building materials, etc..
Even if you request more than replacement cost coverage for your home the homeowners insurance company will still only pay out the actual cost of replacing your home, so having extra coverage is useless. However, if your coverage does not meet replacement cost then you could be out of luck if your home ever needs to be rebuilt after a fire or something else.
Market Value or Purchase Price
A lot of people believe the answer to the question “How much homeowners insurance coverage do I need” is the market value or purchase price of your home. This is the wrong answer. The market value of the home could be more or less than the actual replacement cost. As stated above if you do not have the right coverage you could be paying extra for too much coverage, or be inadequately insured. So, again, make sure you are covered at replacement cost.
A lot of mortgage companies will require a certain level of coverage to satisfy their loan requirements. If your replacement cost is lower than your loan value there are endorsements your insurance agent can include on your policy to satisfy the mortgage company without compromising the rule, in most cases, of making sure you are covered at replacement cost.
Homeowners Insurance Experts
Remember, here at Inside Insurance- South Jordan we specialize in homeowners insurance so you can always call us with your questions or for a quote.
