Purchasing a home is one of the major milestones in your life, and one of the biggest investments you’ll probably ever make. So once you make that investment, you probably want to protect it with home insurance.
Homeowners Insurance and How it Works
Homeowners insurance provides financial relief if a covered event damages your home, property or personal belongings. It can also pay out when you’re held responsible for an accident or injury. It has three main functions:
- Repair your house, yard and other structures.
- Repair or replace your personal belongings.
- Cover personal liability if you’re held legally responsible for damage or injury to someone else.
Homeowners insurance coverage isn’t required by law, but if you have a mortgage, your lender will likely require you to insure the home to protect its investment. Even if you don’t have a mortgage, home insurance is almost always a wise purchase, giving you both property and liability coverage.
What is The Right Amount of Homeowners Insurance?
You need enough homeowners insurance to cover the cost of rebuilding your home if it’s destroyed. The right amount of dwelling coverage will depend on local construction costs.
Don’t focus on what you paid for the house, how much you owe on your mortgage, your property tax assessment or the price you could get if you sell. If you base your coverage on those numbers, you could end up with the wrong amount of insurance. Instead, set your dwelling coverage limit at the cost to rebuild. You can be confident you’ll have enough funds for repairs, and you won’t be paying for more coverage than you need.
To estimate your rebuilding cost, multiply the square footage of your home by local construction costs per square foot. Your home insurance agent or insurer should be able to help you calculate the replacement cost.
For “personal property,” your belongings, you’ll generally want coverage limits that are at least 50% of your dwelling coverage amount, and your insurer may automatically set the limit that way. However, you can lower this limit if needed or purchase extra coverage if you think the limit isn’t enough to cover your things.
A thorough home inventory is the best way to pinpoint how much it would take to replace all your stuff. An inventory record can also come in handy later if you have to make a claim and need to know exactly what you lost. You could make a list or, as a quick inventory hack, take a video of your home and all your items using your smartphone — should you need to file a claim later, this can help make your case.
If you have any questions, please contact MyPFG today! We are here to help you!