How much homeowners insurance do I need?

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Your home is likely your most valuable investment, and the right homeowners insurance can protect that investment against the risk of fire, hail and other damages. But your insurer will only pay for as much as your policy warrants, so it’s crucial to make sure you have enough insurance to cover the cost of potential damages.

Home insurance typically covers four different things: the structure of your home, the contents or personal belongings in your home, additional living expenses in case you must live elsewhere during repairs or rebuilding, and liability insurance to cover injuries to others in your home. Here’s how to determine how much you’ll need for each of these.

Structural Coverage

Your insurance company will provide a recommended coverage limit for your home’s structure, but it’s important to educate yourself to make sure the coverage is right. The amount you paid for your home may not be the same as the amount it would take to rebuild your home in case of fire or other disaster.

The cost to rebuild will depend on local construction prices and the square footage of your home. For instance, if new homes are being built in your area for $100 per square foot, and your home is 3,000 square feet, you may be able to rebuild your home for $300,000. However, you should also consider fixtures, number of bathrooms and special features. If your home includes custom-built finishes or high-end countertops, for instance, the cost will likely be more than the standard per-foot price to rebuild.

Contents Coverage

Conduct a home inventory to assess the value of your home’s contents, recommends the Insurance Information Institute. That may include making a list of items and their value, taking photos or making a video of your belongings. When you’ve determined the ballpark value of your possessions—or the cost to replace them—you’ll have a good idea of how much contents coverage you need.

Most homeowners policies have limits for covering certain types of belongings, such as a $2,000 limit on jewelry. If you have expensive items such as art, jewelry or furs, you may need to purchase additional insurance to cover those items.

Additional Living Expenses

Standard homeowners policies include coverage for additional living expenses, which will pay for temporary living arrangements while your home is being rebuilt. Different policies offer different amounts—some are unlimited for a certain amount of time, while others have a specific limit on the amount. Find out what yours is and make sure it’s an amount you can live with in case of disaster. 

Liability Insurance

 Homeowners policies also cover you against lawsuits for injury or property damage that you or your family members or pets cause to other people. Make sure you have enough liability insurance to protect your assets. Most policies provide a minimum of $100,000 worth of liability insurance, but if you have assets worth more than that, it may be a good idea to purchase $300,000, $500,000, or more in liability coverage.

With a deeper understanding of homeowners insurance, you can work with your insurance provider to make sure you have the right amount of coverage to protect your home.

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