Homeowner's insurance is a policy that pays for damages caused by covered events. While figuring out how much coverage you need may not be your favorite way to spend a Saturday afternoon, if you ever have to file a claim, you will be glad you did it. Typically, you should buy enough coverage to replace the house, garage and all personal belongings.
In determining the amount of homeowner's insurance to carry on your home, you need to consider construction costs, not appraised value. In the event your home is destroyed by a fire, or some other catastrophe, the replacement value is what matters. You can determine this by speaking with an insurance agent from your area, talking with a land developer, or matching your estimate to nearby, newly-built homes. If you compare to newly-built homes, remember to add some coverage for the cost of tearing down your existing structure.
When determining the amount of homeowner's insurance you need, it's important to list all personal belongings. This should start with appliances in the kitchen, as they will not always be included in construction costs. Once this is done, go into each room and list every single item. You may feel it is a waste of time to count all the photo frames that Aunt Sally gave you over the years, but if they have to be replaced, it can be costly. Spend the time now to inventory every single piece of furniture, knick knack, clothing item and accessory that you will need to buy again if a loss occurs.
Using online shopping sites, catalogs and store visits as references, list a replacement value next to each item. It's important to list what it will cost to buy again, not what you paid for it initially, as items may cost more today than they did a few years ago.
After your list has been compiled, you should put it in a safe, fireproof place. Perhaps your parents would be willing to store a copy for you, or you can put it in a safe-deposit box at the bank. Giving your insurance agent a copy is also a good idea, so when a loss occurs, he has an official record of everything you will be requesting money for.
Be sure to make a separate list for expensive jewelry, computer equipment and fur coats. Insurance companies typically attach separate riders for these items because of their fluctuating replacement costs. List the approximate replacement value today, though; the rider will usually just put a blanket cap amount on it for all items.
Adding it Up
Add all items together, including home construction costs, any temporary housing costs, and any special riders for unusual items. Confer with your agent about how much personal liability coverage is appropriate, given your assets and the area where you live. This coverage protects you in the event someone falls, or is otherwise injured, on your property. When you have added all the figures together, you will know how much coverage to buy. The premiums will depend on the amount, as well as the deductible, you choose.
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