How Much Is Enough? 5 Steps to Help You Calculate the Amount of Home Insurance You Really Need

Becoming a homeowner is a big step for many people. You have likely worked for years to get to the position where you would actually be able to afford to buy a home for your family. However, paying for the down payment, associated fees, closing costs, and even the monthly mortgage is only the beginning of what you must pay for that property. Something else you will have to pay for is home insurance for your home.

However, a lot of people aren’t sure how to calculate the coverage they need for their home and everyone inside it.

Here are some tips to help you find how much home insurance you really need.

Determine Your Home’s Replacement Cost

The first step you should take towards calculating the amount of insurance you need for your home is determining what your home’s actual replacement cost would be.

This should be the amount it would take to physically rebuild your house at a market rate if it’s completely destroyed.

This should be the primary purpose of insurance. 

Do some research and look at how many contractors in your area charge per square foot as well as the cost of fixtures and appliances.

It might help to use online calculators or even to have a professional come in and give you a quote.

Determine the Value of Other Property

Certain homeowners insurance plans cover more than simply the structure of the home.

These plans will also cover the contents inside like your possessions and valuables.

This is often known as comprehensive coverage. As such, you should also calculate the value of these assets as well.

It’s easy to underestimate the cost of your things, but you want to ensure that if you lost it all, your insurance could replace it all.

Because of this, you need to add up everything you own. Start in one room and take pictures of all your belongings, keeping inventory as you go. Move from room to room until you’ve noted down everything you would need or want to replace were you to lose it.

Clothing, shoes, sports equipment, jewelry, electronics, and appliances should all be accounted for.

As you buy more things, add them to your inventory.

Some particularly expensive pieces like heirloom jewelry, fine art, musical instruments, and rare collectibles, should be noted in a separate column.

Some insurance companies will have special policies or endorsements to cover these items.

Consider How Big of a Deductible You Want

As with other kinds of insurance, the premiums you pay to insure your home are also partly based on the size of the deductible you will pay out of pocket for a claim.

The higher the deductible, the lower the premiums. Try to calculate a deductible that you and your family will be able to afford should a crisis occur.

If possible, set that aside in a savings account for an emergency.

Consider Add-On Coverage

In addition to insurance coverage that will pay for the cost of the home and its contents, there are other kinds of coverage you can choose to add-on to your policy.

Only choose the coverage you actually need. If you live in the flood plain of a river, for example, flood insurance is probably a necessity.

Use an Online Insurance Calculator

Once you have compiled all this information, you can go to a number of different online insurance calculators to get an estimate of how much it will cost to insure your home.

The calculators available from different companies may produce different results. Use this information as leverage when you get quotes from different insurers.

Paying for insurance for your home is part of the responsibility of being a homeowner.

Make sure you have the right amount of coverage. While you don’t want to pay for more coverage than you need, not having enough coverage can be disastrous if something does go wrong.

Tags: Home insurance

Category: Insurance