Are you one of the 65 percent of Americans who are homeowners?
If yes, you’re certainly enjoying the perks of homeownership. Owning a home is a dream come true for most people.
What if we told you it’s possible to lose your home? An unfortunate event like an electrical fire or a natural disaster such as a windstorm can completely destroy your home.
The good news is you can purchase homeowners insurance to protect your investment. If you’ve never purchased this coverage before, you’re probably asking: just how much homeowners insurance do I need?
In this article, we’re telling you how to go about determining the amount of coverage you need to adequately protect your home.
What Kind of Coverage Does a Homeowners Insurance Policy Provide?
To figure out the amount of homeowners insurance you need, you ought to start by understanding how these policies work.
A typical homeowners insurance policy has six parts, as listed below:
- Dwelling and other attached structures, such as a car garage.
- Stand-alone structure, such as an ADU or gazebo
- Personal property – Your valuables in the property
- Additional living expenses – in case of the need to relocate because you can’t use the home
- Personal liability, in case you need to compensate someone who is injured on your property
- Medical payments – Made to those injured on your property.
Different insurance companies package their policies differently. This is to say, if your total coverage is $1 million, the allocation of funds to these six parts varies from insurer to insurer. For example, for the same coverage amount, some insurers will set aside $200,000 for your personal liability, others will set aside more or less.
Now that you know the components of a homeowner’s insurance policy, let’s focus on the factors that will determine how much coverage you need.
The Value of Your Home
This is pretty straightforward.
The purpose of insuring your home is to, in the event of total damage, get compensation that’s equal to the value of your home. So, if yours is a $500,000 home, your coverage shouldn’t be less than this amount.
Ideally, it should be at least double the value of your home, since you have to factor in the other six elements. Check out https://www.homesinmeridian.com/blog/protecting-the-investment-in-your-home/ to learn more about how to use insurance to adequately protect your investment.
The Risks Your Home Faces
There are risks every home faces. Fire is a good example. Then there are risks only homes in certain areas face.
For example, if your home is in a flood zone, there’s a high risk of flood damage. Homes located in areas that aren’t officially identified as flood zones don’t face this risk.
Insurers will take these risks into account when selling your homeowner’s insurance. If your home is in a flood zone, you’ll need a lot more coverage. The same applies to other risk factors.
How Much Homeowners Insurance Do I Need?
If you’re still asking, “how much homeowners insurance do I need?” it’s because there’s no clear-cut answer. It depends on a range of factors, including the value of your home and the nature of the risks your property faces. Your insurance agent can help you reach an estimate.
Keep reading our blog for more tips and advice for homeowners.