The surefire way to protect your investment in your home and its contents from damage or destruction is by purchasing homeowners insurance. But there is no one-size-fits-all approach to shopping for a home insurance policy. How much you spend depends on how much property you have and how far you want the coverage to extend.
Why do I need homeowners insurance?
In general, homeowner’s insurance covers damage to your home caused by fire, theft, and certain natural disasters. Homeowner’s insurance also protects you from liability in the event someone is injured in your home. When deciding whether to purchase a homeowner’s insurance policy, keep in mind the policy can save you thousands, possibly millions, of dollars if your home is damaged or destroyed or someone attempts to sue you after being hurt in your home.
What should I consider?
As a homeowner, you should have enough insurance to cover:
- The structure of your home.
- Your personal possessions.
- Additional living expenses, in the event you need to move during home repairs.
- Your liability to others who may be injured on your property.
To help decide how much to spend on coverage:
- Determine the highest deductible you can reasonably afford.
- Identify whether you live in a disaster-prone area, such as a coastal area.
- Speak with us about additional policies (such as flood insurance or umbrella insurance) that you may need to protect your home.
How much coverage for personal possessions?
When thinking about the amount of coverage you want for your personal possessions, a good guideline is to insure them at 50 percent to 75 percent of your dwelling coverage amount.
So, the idea is that if you insure your dwelling for up to $200,000, then you would want to insure your personal possessions for at least $100,000.
What about liability coverage?
If your dog bites the letter carrier or someone breaks a leg falling down your staircase, you could be on the hook for those injuries without the right liability coverage. The amount of liability coverage typically included in a homeowner’s insurance policy ranges from $100,000 to $500,000, according to the Insurance Information Institute. If you’re a high-net-worth homeowner, you may consider purchasing an umbrella liability policy to provide additional liability protection for your assets.
How much should I expect to pay for homeowner’s insurance?
As with most types of insurance, when you purchase homeowner’s insurance you pay for the annual premium and decide on a deductible amount to be paid when you file an insurance claim. Usually, this is paid monthly as part of your mortgage payment. Most insurance companies will let you to decide on a deductible amount you’re comfortable with, but most homeowners choose an amount between $500 and $1,000.
What’s the difference between homeowner’s insurance and a home warranty?
Many realtors include a home warranty as a closing gift to clients, but be aware that a home warranty is not a substitute for homeowner’s insurance. A home warranty covers the physical parts of your home, such as the refrigerator and air conditioning system, in the event one of those parts breaks down. Home warranties do not cover losses or damage due to theft or weather events, but homeowner’s insurance does. Ideally, you’d have both a home warranty and homeowner’s insurance, but if you can only afford one, homeowner’s insurance is probably the way to go, as it offers more coverage.
What else is there to think about?
Your homeowner’s policy provides limited coverage. Fine arts, furs, jewelry, coins, cameras, and musical instruments have to be scheduled with additional coverage. We are able to answer your questions if you have a valuable asset and you are uncertain about a separate policy.
Flood damage is not covered by a standard homeowner’s policy — you have to purchase separate coverage. So, when deciding how much home insurance coverage you want to buy, be sure to consider that you may need room in your budget for flood insurance, too, depending on the flood threat where you live. Please see our flood insurance page.