If disaster strikes, you’ll want enough homeowner’s insurance to rebuild the structure of your home, replace your personal belongings, pay for unforeseeable costs if you’re unable to live in your home and protect your financial assets in the event of liability to others.
While your insurer will provide recommended coverage limits for the structure of your home, you need to educate yourself to the policy limits as its your duty to know what the value of the item(s) you are insuring.
Let’s start with the home which is called on many homeowner’s policies as “Coverage A” and/or Structure or Dwelling coverage.
To make sure your home has the right amount of structural coverage, consider the following:
What I do is simply take my home square footage and multiply it by todays cost to build a home new.
In some areas that would be as low as $150 a square foot, in other areas higher like $250+ a square foot.
Example 1:
If my home was 1,000 square feet and I was told by a local general contractor that the cost to build a home in Bakersfield, CA it would cost $150 per square foot to build from the ground up, then my “Coverage A” (also called Structure or Dwelling) coverage limit should be $150,000.
1,000 x $150.00= $150,000
Example 2:
If my home was 2,153 square feet and I was told by a local general contractor that the cost to build a home in Anaheim, CA was $200 a square foot, then my “Coverage A” (also called Structure or Dwelling) coverage limit should be $430,600.
2,153 x $200.00= $430,600
Example 3:
If my home was 6,527 square feet and I was told by a local general contractor that the cost to build a home in Malibu, CA was $300 per square foot, then my “Coverage A” (also called Structure or Dwelling) coverage limit should be $1,958,100.
6,527 x $300.00= $1,958,100
You will also want to take into account if you have upgraded items such as: faucets or bathroom tile, windows, expensive flooring, etc. Then, you might want to add that into your already equated “Coverage A” limit.
Another consideration you need to factor in is whether or not your home is up to code. Building codes are periodically updated and may have changed significantly since your home was built. In the event of damage, you may be required to rebuild your home to the new codes and homeowner’s insurance policies.
Inflation is another factor that can impact building costs. If you plan on owning your home for a while, consider adding an inflation guard clause to your policy. An inflation guard can automatically adjust the dwelling limit to reflect current construction costs in your area when you renew your insurance.
Moving from Coverage A (a.k.a. Structure/Dwelling) coverage to the next important item is protecting your personal items such as clothes, furniture, electronics, linens, dishes, etc.
This coverage is often called Unscheduled Contents or Personal Property and in many policies is additionally called Coverage C.
You will need to conduct a home inventory of your personal possessions to ensure adequate coverage.
This can be done by breaking each room down and coming up with a current total dollar amount for what is in that room, if you purchased those same items today brand new. Add the totals from all those rooms together, including outside and garage items (excluding any motorized vehicle, motorcycle, scooter, etc.), then you obtain your grand total.
Example:
Master Bedroom $12,500 Big price items (Mattress, Bed set, electronics, clothing)
Kitchen $25,000 Big price items (cooking tools, appliances, dishware, table)
Bathroom $6,000 Big price items (hair irons, make up, towels)
Outside $10,000 Big price items (shed, yard tools, bicycles, hoses,etc.)
Garage $30,000 Big price items ( tools, sports equipment, toys)
$83,500 Total
Please Note: expensive individual items such as jewelry, technology, antiques, art, cameras, etc. need to be “Scheduled” or listed out separately and submitted to your agent. If not, they are subjected to small sub-limits, meaning little coverage.
For example, jewelry can be capped out at $2,500 on some perils like theft. This will leave you substantially underinsured if you lose all your jewelry worth $10,000.
Insurance policies either cover actual cash value (where the policy would pay less money for older items than you paid for them new) or replacement cost (which could cover to replace the items). Although premiums are more expensive for replacement cost policies, it is generally a worthwhile investment.
If you own property, have investments or savings worth more than the liability limits in your policy, consider purchasing a separate excess liability or umbrella policy.
There is a lot to consider when determining the right amount of insurance coverage, so you don’t find yourself underinsured when a disaster strikes. Make sure you ask good questions to your insurance agent/broker, especially on specific items you treasure so they are fully covered in the event of a loss.
Los ejemplos y la perspectiva de este artículo son la opinión de Claim Ally. Claim Ally no ejerce la abogacía ni brinda asesoramiento legal.
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