Figuring out how much homeowners insurance you need is a fairly complex calculation because you must determine the amount of protection you require in four key coverage areas—dwelling, personal property, loss of use, and personal liability.
While you can find do-it-yourself home insurance coverage estimators online, Morse, of course, recommends you work with a highly skilled, local insurance professional to make sure you get the appropriate homeowners coverage. Taking advantage of an agent’s expertise can typically help keep you from overpaying for insurance coverage you don’t need or putting your property and belongings at risk because you’re underinsured.
Below, Morse walks you through how to evaluate the amount of dwelling, personal property, loss of use, and personal liability protection you may need. Of course, if you have additional questions after reading this information, the Morse team would be happy to discuss your home insurance requirements and coverage with you.
Step #1: How much Dwelling Coverage do I need?
Determining the amount of Dwelling Coverage—protection for the structure of your house—you require is the most important factor that goes into figuring out how much overall home insurance you need. To evaluate what Dwelling Coverage amount will be appropriate, you should account for numerous characteristics of your property, including the following:
- Square footage of the structure
- Style of the house (e.g., ranch, colonial, or cape)
- Number of bathrooms and other rooms
- Type of roof and other materials used
- Local construction and materials costs
- Other detached structures on the premises (e.g., garages and sheds)
- Special finishes or extra features (e.g., fireplaces, crown moldings, a swimming pool, or a hot tub)
- Improvements made to the home that may have increased its value (e.g., a second bathroom, kitchen renovation, or finished basement)
If catastrophe strikes, most homeowners want peace of mind that they will be able to rebuild their house to its exact pre-disaster condition. Some think they can achieve this simply by getting Dwelling Coverage equal to the amount they originally paid for their house. However, if an unexpected event occurs and their Dwelling Coverage has not been adjusted to reflect changes to their home since it was purchased—like an increase in the market value of their home or a rise in construction and materials costs—then the homeowner may not have nearly enough coverage for a complete restoration of their house.
There is a home insurance endorsement for eligible homeowners that typically helps pay the costs to rebuild a home to the precise form and function it was in prior to being destroyed. To learn more about this type of dwelling coverage, which is called Guaranteed Replacement Cost, give the Morse team a call.
Step #2: How much Personal Property Protection do I need?
Generally, the amount of Personal Property Protection you require typically falls between 50 and 70 percent of the amount of insurance protection you’ve selected for your Dwelling Coverage. To be confident that you have enough Personal Property Protection, you should share a list of what you own, as well as the value of these belongings, with your agent. Items on this list may include:
- Appliances not built into the house
- Clothing
- Electronics (e.g., TVs, computers, and cameras)
- Furniture
- Home décor
- Jewelry
- Musical instruments
- Patio/Outdoor furniture
- Rugs and window treatments
- Sports equipment
- And more…
One way homeowners can provide their insurance professional with an estimate of everything they own and what it’s worth is by putting together a more detailed home inventory. This list will make it much easier to formulate an accurate replacement cost and determine the appropriate coverage amount for each item you own. Having an updated home inventory is also incredibly smart for another reason—it may help make the claims process move much more smoothly and quickly if you have a loss.
In addition, most homeowners want to have sufficient Personal Property Protection to replace destroyed belongings with a brand-new item that is the same make and model as the ruined one. Ask your agent to explain the benefit of getting Personal Property Protection based on replacement cost versus actual cash value. In addition, you may want to speak with them about scheduling any high-priced items, like antiques, rare collectibles, or commissioned pieces of art, to make sure these valuables are fully covered if they are lost, damaged, or stolen.
Step #3: How much Loss Of Use Coverage do I need?
Similar to Personal Property Protection, Loss Of Use Coverage limits are typically based on the amount of insurance you have for your dwelling. These limits tend to range from 10 to 30 percent of the dwelling coverage, depending on the insurance company. However, some insurers may offer higher limits, or even unlimited Loss Of Use Coverage, for an additional cost.
To determine which end of the spectrum is the best fit for your home insurance needs, it’s beneficial to know what you spend per month on living expenses such as meals and gas. Then, consider the potential lifestyle changes you may experience and the additional costs you may incur if you are displaced from your home due to a covered event. For example:
- Hotel or short-term rental fees
- Moving and storage charges
- Fuel expenses for an extended commute
- Laundry bills if you no longer have a washer/dryer
- Pet boarding expenditures if your temporary residence doesn’t allow animals
- Extra food expenses if you must eat out more
Ideally, your homeowners policy should include an amount of Loss Of Use Coverage that minimizes how much you pay out of pocket for these types of additional living expenses.
Step #4: How much Personal Liability Coverage do I need?
A standard home insurance policy typically comes with a minimum of $100,000 of Personal Liability Coverage. But for many homeowners, it is well worth it to pay slightly more to increase their policy’s limit of personal liability to $300,000 or as high as $500,000.
To determine the right amount of Personal Liability Coverage, there are two main things you want to take into account. First, you should know the value of your assets, including homes, belongings, vehicles, and financial accounts, such as savings and investments. Second, identify the risk factors that might make you more vulnerable to a lawsuit and could threaten these assets.
Despite what many homeowners might think, having substantial wealth is not the only factor that increases their liability exposure. Other risk factors include:
- Owning a dog
- Having a swimming pool, trampoline, or hot tub
- Owning a boat, motorcycle, or RV
- Entertaining frequently
- Renting out an investment property
- Employing household staff
- Having a teenage driver
Since a standard homeowners policy usually tops out at $500,000 of Personal Liability Coverage, it may be worth it to consider purchasing additional liability coverage, especially if your net worth adds up to more than $500,000 or you have one or more risky exposures. The Morse team would be happy to talk to you about the benefits of an umbrella policy. It is an extremely affordable insurance solution that could provide you with $1 million or more in added Personal Liability Coverage.
You can rely on Morse, of course, to help secure the home insurance coverage you require.
At Morse, we use our industry experience, local knowledge, and access to the latest insurance tech to consider all your home insurance requirements. We look at the amount of Dwelling, Personal Property, and Loss Of Use Coverage you may need, as well as the level of liability risk you may have, to provide you with a recommendation for the amount of home insurance coverage that will offer the best level of protection. Whether you’re a new homebuyer or a homeowner whose policy is up for renewal soon, contact the Morse team for assistance evaluating how much home insurance you need.