How Much Homeowners Insurance Do I Need?

For many of us owning a home is our biggest investment and greatest asset. However, let us not forget to keep in mind our personal property such as fine jewelry, antiques collection, fine arts, gun collection, sofas, computers, and many other home goods. In today’s world many people simply want the least expensive insurance just to satisfy the requirements of their mortgage company or bank.

It is important to remember that homeowners insurance is not just a requirement it is a valuable solution that will protect you in an event of loss and offer a peace of mind. Homeowners insurance not only covers the cost to rebuild or repair your home in the event of a fire or natural disaster, but also helps replace your stolen or damaged personal property.

Therefore, it is imperative that you assess your needs adequately. There are many professional sources available to help you assess the value to rebuild your home and replace your valuables or you can consult your insurance agent. Here a few a tips to keep in mind and help you in determining the correct amount of coverage.

• Actual Cash Value (ACV)  vs. Replacement Cost (RC)
• ACV is based on replacing your assets by deducting the cost of depreciation
• Scenario: You have a 50” flat screen TV and entertainment system you purchased 2 years ago for $3,500. There was a fire and the TV and entertainment system was completely destroyed. The insurance company would pay you $2,500 because that is what it would cost today after deducting depreciation.
• RC is based on replacing your assets without deducting depreciation at the cost it would be at today’s price
• Scenario: Take the example above with the TV and entertainment system. The insurance company would pay you $3,700 because that is what it costs to replace the lost property in today’s prices.
• As you can see from the example there is gap of $1,200 in the amount of money you receive, so you must ask yourself are you willing to cover that amount out of your own pocket?
• We recommend getting replacement cost coverage
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• Get estimation on how much it would cost to repair or rebuilt your home in the event of a loss. Take into consideration the following:
• Any upgrades you have made including custom kitchen and bathrooms, BBQ pit, room expansion, storage shed, custom moldings, etc.
• The age of your home – do you need to rebuild based on modern building standards?
• Cost to rebuild which includes labor, materials, and inflation. It is great to consult a reputable contractor.
• One thing is definitely important; your home should be covered for at least 100% replacement cost. Also, bear in mind replacement cost is not the same as market value. Market value is what you pay to purchase the home which includes the cost of land, whereas replacement cost is the amount necessary to rebuild or repair your home entirely.
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• Make a list of the personal property in your home. Taking an inventory can be tedious, but when a loss occurs it is your most valuable tool. A few things to keep in mind is be detailed as possible, make an itemized list, take pictures or make a video, and most of all the keep inventory list in a safe place such as safe deposit box or online cloud service.

These are just a few important things to keep in mind when assessing the amount of homeowners insurance you need. Remember owning a home is one of your greatest investments, so be sure to get the protection you need. If you have any others questions or concerns give us a call, send us an e-mail, or simply drop by our office.