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What is a typical home insurance policy?
It is an insurance policy that protects the people on your property, your belongings and your property in the event of "a bummer" or a disaster that would require more money to resolve than what you have in petty cash.
The common events usually listed are fire, flood, and lightning strikes which are covered. What about the rushed driver who accidently puts the car in forward instead of reverse, or steps on the gas instead of the break and takes out the garage support column or puts the bumper through the drywall? Vandalism can be an issue that is covered as well. The last thing you want is to find out you don’t have enough coverage when you need it.
So how would you figure out your insurance coverage needs? Ask yourself a few "How much would" questions:
How much would it cost to
- rebuild my home? (that would be dwelling coverage)
- replace my personal belongings? (that would be personal property coverage)
- pay for injuries on my property? (that would be liability coverage)
- maintain my quality of life somewhere else temporarily while repairs are made? (that would be additional living expense coverage)
Below, are answers these questions so you can determine the amount of coverage you need.
1. How much would it cost to rebuild my home?
Which is identified as Dwelling Coverage enables you to rebuild your home and other structures (like garages, sheds, fences, porches, and decks) in the event of a disaster.
How much you need is a subjective choice, another question to ask is how much coverage would make you feel very secure? Some companies require dwelling insurance that covers 100% of the property’s replacement cost. So, at the least, dwelling insurance coverage should be 80% of the property’s replacement cost. That way you are not holding a policy that may not pay for all of the rebuilding expenses.
How do you calculate replacement cost, first understanding that a home’s replacement cost is not the same as its current market value. A replacement cost can be lower or higher than the market value because these factors, current local construction costs and availability of materials, age and style of the house, number of rooms, previously made improvements, new city ordinances or building codes.
You can quickly estimate your replacement cost by multiplying the square footage of your home by current construction costs per square foot (you can find these costs by searching construction websites). Although, you could speak to a Tabby Blue expert to help with your home’s replacement cost.
Even though many insurance policies require dwelling insurance equal to 100% of the property’s replacement cost.
It is very important to include additional coverage options. New building codes can increase a home’s replacement cost significantly. For example, you might have to upgrade electrical wiring, plumbing systems or building materials to meet new requirements. Meeting new requirements could be more expensive which is where Building codes coverage or ordinance law coverage will protect you by taking care of those increased costs.
There is also the option of adding extended replacement cost coverage that way the insurer pays the costs of repairing or rebuilding your home, over and above the limits in your standard dwelling coverage. That way after a disaster, any increased demand for construction materials and labor that increases the cost of rebuilding your home is not a concern.
If you are planning on living in your home for many years? An inflation guard would be an important tool. An Inflation Guard will cover the increased costs of construction over the years and adjusts your policy accordingly. (Tabby Blue will have your home’s full rebuilding cost recalculated every year to make sure that you are covered with the amount of protection you need.)
2. How much will it cost to replace my personal belongings?
The amount of coverage is dependent on the value of your person property. Personal property coverage protects your belongings (on or off your property) against the common losses like theft, fire and vandalism or uncommon disasters like lightning, windstorms, explosions, and some others. To know exactly what it will cost to replace your personal belongings schedule a call with a Tabby Blue professional.
This is a good start to figure out how much you need. Check this source - the Insurance Information Institute shows most homeowners insurance policies have personal property coverage that is between 50 and 70% of their dwelling coverage. You can purchase the amount of coverage that will make you feel most secure, always remember to take a mental inventory several times so that you include any particularly valuable items that you have.
List the things you own and figure out what they are their worth. Go room by room and take pictures or videos of everything. Note the makes and models of technology. Make copies of any receipts that you have. Google the items and show present prices.
Provide specific details for expensive items, like laptops, smartphones, or jewelry. Policies typically set limits on what will be paid for these items if they’re destroyed, so you might want higher policy limits to include those items.
Typical personal property coverage is 50–70% of your dwelling coverage so make sure that works for your unique lifestyle.
If your stuff lasts so long that it's depreciated value is less than the insured value you could cancel that part of your policy and save money for better stuff. You do not want to insure stuff for more than its replacement value because your premiums would be more than needed. The key is to balance policy your items for their actual cash values (which can be less than you bought them for) or for their replacement values (which can be more than you bought them for). Replacement cost coverage, while more expensive, might be a worthwhile investment.
3. How much would it cost to pay for injuries on my property? (that would be liability coverage)
How much liability coverage do I need? Since liability coverage protects you from medical costs, lost wages, legal fees, funeral costs and other costs associated with injuries on your property. Figuring out how much you need takes a bit of thinking, base your coverage on your specific needs not on what the average or typical policy holder insures. You obviously want to purchase enough coverage to maintain your lifestyle without over insuring because over insuring is a waste of money.
Things to consider do you spend quite a bunch of time at home (working from home more often than you go into the office) or if you’re more likely to get sued (for example, if you work in a high-visibility career), you might consider umbrella coverage, which provides liability coverage beyond your standard policy.
The best amount to start with for a home insurance policy is $100,000 of liability coverage and then factor in what we have talked about to determine if you need more to maintain your lifestyle.
4. How much would it cost to maintain my quality of life somewhere else temporarily while repairs are made? (that would be additional living expense coverage)
How much additional living expense coverage do I need? Additional living expense coverage picks up many of the costs you might face if you can’t live in your home while it’s being rebuilt after a disaster.
For example, what if you can't cook in your kitchen or sleep in your bedroom because they were destroyed, use this coverage to pay for going out to eat or staying in a hotel. This coverage will sometimes, cover the costs of storing your belongings, moving and even doing laundry.
Policies have an Additional Living Expense Coverage option will include additional living expense coverage that is up to 20% of your dwelling coverage.
For many families, this percentage is enough, but if you have a large family or other specific needs that might increase the cost of living, you might consider extending your limits.
Here are some additional coverage options
Floods, earthquakes, sewer backups, sinkholes, certain mold problems and other disasters are not always covered by a standard plan. That is another benefit of the Additional Living Expense coverage.
Here are some 2017 survey stats; 68% of people thought standard policies cover sewage backups but they don’t. Also, 38% of people thought that standard policies cover broken appliances or HVAC issues, but they don't. Look closely at your plan to understand what it does and doesn’t include and consider adding on additional coverage.
Homes are happy places where family memories are made, it is worth the effort to protect your happy place. Thuroughly protecting your home and belongings will minimize the impact if a disaster occurs. Determine exactly how much coverage you need with a home insurance quote from Hippo, which is available in 60 seconds.