How Much Home Insurance You Need

Review Your Home Insurance Coverage Every 3 Years

Whether you are a first-time or a long-time homeowner, you have an evergreen list of home chores. From renovating the kitchen, to fixing up the storage mess in the garage, to switching all old bulbs for energy efficient ones, list of improvements doesn’t end.

In this long list of to-dos, place this item at the very top: Review how much home insurance you need. Do this every 3 years, or when you remodel or add expensive personal property to your home, such as artwork or rare antiques.

Evaluate Your Rebuilding Costs

When thinking about how much home insurance you need, prepare for the worst — rebuilding your entire home from scratch. Here are some specific costs to consider in your calculation:

• Market value doesn’t equal rebuilding cost: The rebuilding cost of a home may be greater than its market value. Even the best purchase offer you could ever see may be less than the rebuild cost.
• Consider the full replacement cost: When choosing the value of your policy, don’t forget to include the upgrades you added with specialized materials or labor. If you remodeled the original dwelling over the years, upgrade your policy or consider a homeowner’s policy that covers 125% or 150% of the extended replacement cost.
• Don’t forget about your lender: On top of your full replacement cost, make sure to have enough to first cover your mortgage. Banks are fine with an insurance that just covers the mortgage, but you shouldn’t. Plan for a scenario in which you need to pay your mortgage and rebuild your home in its entirety.
• Keep up with the Joneses: Don’t buy the latest trends, but check local building costs and latest building codes in your neighborhood. If you have an old home, you must meet current building codes when you rebuild.

Increasing your coverage does not necessarily mean your rates will go up. You can save money by shopping for home insurance insurance.

Take (and Update!) Your Inventory of Personal Property

If you think rebuilding your home is expensive, now think about doing that and having to buy all the stuff inside that was destroyed! This is a reality few homeowners like to think about. Skimping on home contents insurance is not a good idea. Think about how hard it was to buy all pieces of furniture, electronics, and large kitchen appliances in the first place.

• Remember the personal property valuation rule of thumb: Coverage for your possessions should be 50% to 75% of your dwelling coverage. Don't stop here, however, especially if you own original art or valuable antiques.
• Take inventory of all your possessions inside your home: If you want a more specific number, then you need to run a full inventory. The New York Department of Financial Services offers a great home inventory checklist to get you started. If you prefer to use technology, then check if your insurance company has an app to do the inventory, or do walk-by inventory with a video camera and naming out loud the possessions and values.
• Leave the guesswork out of the values: Keep original receipts from large item purchases. Just remember that you will only get the current replacement cost minus the depreciation.

Determine Your Need for Liability Coverage

In an age when burglars try to sue homeowners who act in self-defense, you cannot be too careful and need to include liability coverage in your home insurance.

• Consider dangerous situations inside and outside your home: From a tall set of stairs to a trampoline by the pool, consider all likely scenarios for a liability.
• Remember your pets: Depending on their size and breed, they may pose a hazard to others.

Consider other home insurance add-ons if you have unusual features on your property or especially valuable personal property.