Determining the right amount of dwelling coverage for your home is an important part of securing the appropriate home insurance.
The dwelling coverage portion of a homeowners insurance policy pays to repair or rebuild your home if it is damaged or destroyed by a covered peril, such as fire, windstorm, or vandalism. As you evaluate dwelling coverage options, here are some key factors to consider:
Determining Your Dwelling Coverage Needs
Calculating the cost to rebuild your home
A good starting point is to determine the estimated cost to completely rebuild your home in the event of a total loss. An insurance agent can help calculate this number, known as the replacement cost value, based on the size, features, and materials used in your home’s construction. Online calculators can also provide an estimate. It’s important not to underestimate replacement cost, as you don’t want to be underinsured. Consider upgraded materials, labor, and demolition costs as well.
Considering additional structures on your property
Dwelling coverage also covers other structures on your property like detached garages, sheds, fences, and pools. Add up the estimated rebuilding costs for these structures as well. Some policies set a coverage limit such as 10% of the dwelling coverage amount. Know what is and isn’t included to determine if more coverage is needed.
Evaluating the value of your personal belongings
The dwelling coverage pays to replace the structure, not replace possessions inside. For content coverage, you’ll need personal property or content insurance. Calculate the value of all your possessions to ensure you have enough coverage. An inventory checklist can help account for everything. Consider things like furniture, electronics, clothing, and kitchen items.
Understanding Liability Insurance
Assessing your potential liability risks
Your home insurance also provides liability protection in case someone is injured on your property. Typical liability claims involve slips and falls. Consider your property’s risks – a pool or trampoline may increase the chances of an injury. Make sure your coverage limits are sufficient to cover potential legal judgments.
Determining appropriate coverage limits
Policies commonly provide a minimum of $100,000 in liability coverage, but more is usually recommended. Umbrella insurance can supplement your limits for added peace of mind. For homes with significant assets, higher liability limits of $300,000 to $500,000 or more may be warranted.
Additional Living Expenses Coverage
Considering the potential cost of temporary accommodations
If your home is uninhabitable due to a covered loss, additional living expense (ALE) coverage can pay for temporary housing costs. Hotels, furniture rentals, and restaurant meals can add up quickly for a family. Consider your housing options and average living costs to determine an appropriate ALE limit.
Factors to consider when determining the coverage amount
The standard ALE policy limit is 20% of dwelling coverage, but increasing this to 30% or more provides greater coverage. Factor in costs like pet boarding, laundry, transportation, and storage facilities as well. Keep in mind the coverage is limited by the policy period, so a 12-month policy with 20% ALE provides up to 12 months of reimbursement. Higher limits provide more months of coverage.
Getting the right amount of dwelling and liability coverage protects your most valuable asset – your home. An insurance agent can help customize your policy limits and explain exclusions. Periodically review your policy, updating coverage as needed when renovations are made or possessions are added. With proper dwelling insurance, you can rest assured knowing your home is protected.
