One of the questions we get most often from customers is how much homeowners insurance should I have? When people ask this, they generally expect that we will give them a number similar to what they paid for their home. While that is an ok place to start, the true answer is more complex and includes determining how much you will need in each of the three main elements of a homeowner’s policy. In this blog, we will break down each of those three elements and how to calculate what you need.
Element 1: The Cost To Rebuild
The first is how much dwelling should you have, or how much would it cost to rebuild your house? A lot of people tend to get this confused with the market value of their home. They will “Hey, I bought my house for $150,000. That’s what my insurance should be, right?” That’s actually not true. Insurance companies view the replacement cost is how much it actually will cost to replace your house from the ground up, and they do not factor in how much you paid for it or how much you can sell it for.
We see this a lot in downtown Lancaster, even downtown York, where these older homes are built in the early 1900s, they have strong brick walls, and they’re sold for $150,000, but the insurance replacement cost is usually around to $500,000. The quick response we then hear is “Why in the world am I paying for so much more insurance?” It’s because if a home catches on fire and burns to the ground, it’s going to cost a lot more money to build it back up then the new frame homes do.
Some of the factors that are used when figuring out the replacement cost value is how much square feet the house has, what the house is made out of (brick, frame, joisted masonry). Insurance companies also take into consideration the customizations of the home (designer bathrooms or kitchens), how many garages the home has, decks, patios, and all of the other features that make the home uniquely yours.
Element 2: Coverage B
Another element to the building coverage is the other structures, or Coverage B. Other structures is a percentage, usually around 20% of the dwelling amount. For example, if the replacement value of your home is calculated at $320,000, you will be given $64,000 of other structures coverage. This is meant to protect things such as sheds, barns, fences, pools, or things that are of value that are not attached to your home.
The second element of a homeowner’s policy is your personal property. The personal property is literally all of your things in your house. The rule of thumb we use in the insurance world is if you take your house and you flip it upside down and shake it, everything that falls out is considered your personal property. The things that don’t fall out are part of the structure and should be included in the dwelling amount. Personal property includes your furniture, clothes, electronics, appliances, etc. In your homeowner’s policy, you can find this listed as “Coverage C”.
Homeowners policies have some coverage for valuable items built into them. The limits are generally pretty low so if our clients are collectors of coins, guns, art, or have expensive jewelry, we advise them to schedule them on their homeowner’s policy. To schedule something on your insurance policy simply means that you define an item with a description and appraised amount that is not subject to the defined limits on your policy.
For example, if you own an engagement ring that is appraised at $15,000. Standard homeowners’ policies usually have coverage for jewelry capped at $3,000 per item, which is nowhere near sufficient for your ring. To make sure it is protected for the full value you would provide your agent with a detailed description of the ring along with an appraisal and your agent would “schedule” it on your policy. It is an additional cost to schedule items on your policy but depending on the value of the items, it is totally worth it.
Element 3: Liability Coverage
The third and most important part of a homeowners’ policy is the liability coverage. It’s also the part that people generally don’t think about. Liability coverage is coverage for bad things that happen to other people because of you. Say someone is at your house and they slip and fall, or they get bit by a dog while visiting, or anything else that injures them at your house. This liability also follows you as you are out and about in your everyday life.
For example, if you were playing golf and you drive a golf ball through someone’s car window, or you hit somebody, or anything else someone may sue you because you injured them. We generally recommend at least $300,000 – $500,000 as a starting point but encourage people to asses their risks and reevaluate each year. The liability coverage also covers you as you travel the world is not limited to just your house or the United States, which is a nice little feature.
Those are the three main elements for you to consider when attempting to answer “How much homeowner’s insurance should I have?“.
- How much is your actual home worth, not how much you bought it for, but how much it’s going to cost to repair from the ground up.
- How much personal property do you have? Do you have any special rings, any special guns, any special artwork that we should schedule out in your policy?
- How much liability we should have? How big is the home? How much do you entertain? Do you have a swimming pool? Do you have pets?
All of those factors go into a single homeowner’s policy of how much you should have.
Hopefully, that was helpful. If you’d like more information, we just built a brand-new website, go check it out. It’s got a ton of information about homeowners’ insurance. What should you have, everything we outlined today is on there? Also, feel free to call us. We have agents here all day long, ready to help answer your questions you might have about how much homeowner’s insurance you should have or anything else. Feel free to give us a call at Susquehanna Insurance, at 717-290-7780.
We bring clarity and simplicity to your insurance needs.