Insurance Agent Guide: How Much Home Dwelling Coverage Should I Have?

Jan 6, 2021 | Personal Insurance

Calming the fears of Home Insurance buyers

One of the greatest fears of many home insurance buyers is the thought that they might not be buying enough coverage for their house. Most homeowners think that buying the minimum will be enough until they need to file a claim and realize that their home insurance can’t cover all the damages. How much dwelling coverage should I have?

However, even if your house is paid off, still, it is always best to have peace of mind that your house will be covered whatever happens. Remember, this is one of your biggest investments, you surely don’t want to have it all to waste once a disaster comes. 

Buying the right amount of insurance can be tricky because it depends on many factors. As of March 2020, the average amount of homeowners’ insurance premium is $1,211 per year according to NAIC. But again, the amount of your insurance does not only depend on the value of your house. 

How much Dwelling Coverage should I have?

Dwelling is for the structure of your house. So imagine all the things that were used to build it and all of the features that are attached to it, those are the things that you need to know to calculate your house. But be mindful of the changes, for example, the construction and labor cost can have a huge shift after a couple of years

Also, fluctuation of the cost can change if let’s say, a natural disaster hit your area hard and a lot of houses are destroyed by the peril. Since the demand for materials and labor is high, the costs are going up too. If this happens, your dwelling covering might not be enough to cover the damages. 

Most insurance company’s best solution to that is to offer an Extended Replacement Cost (ERC) coverage or inflation guard as an endorsement added to your dwelling insurance.

Generally, ERC offered in amounts to 25% to 50% of your dwelling limit. So if ever that you file a claim and you use up your dwelling coverage to its limit, ERC will provide the remaining amount needed up to the ERC limit. However, some insurance companies offer Guaranteed Replacement Cost (GRC) coverage for a much higher premium.

Let’s say your house needs to be built again due to total damage, even if the cost of rebuilding it again skyrocketed three times, still it will be reimbursed.

The best strategy that I always advise my clients for them to properly calculate the amount of their house is to know all the details about the actual house itself. 

1. What are the materials that were used to build it?

Just like other things, the quality of the materials used in building your home is a great factor that affects the amount of your house. We all know that the more expensive the material, the more valuable it is. Therefore, make sure to take note of the amount of all the things used in your home like:

  • The type of cement, wood, tile, marble, glass, or anything that was used to build the floor, walls, ceiling, and roof. 
  • Does your house have any special features like a jacuzzi, indoor glass falls, or indoor pool? 

2. What are the changes that were made?

Renovation of your house is also a big factor that can contribute to the value of your abode. This is a pretty common dilemma for most of my clients. Because who doesn’t want to have the exact dream house they ever wanted? They tend to make some changes and upgrade now and then.

And that is the tricky part! I always advise my clients to document all the changes, and it’s best if they can keep the receipts of anything that cost them on the renovation. It is the safest thing to do to ensure that they can calculate the right amount for any changes that were made.

So for example, you have decided that you want to have a bigger kitchen and upgrade the tiles to marbles, or you want to change the plastic door of your bathroom to glass. Those kinds of renovations must be recorded. 

3. What is the prestigiousness of the house?

There are many types of houses. You need to make sure to take note of the prestigiousness of your house. For example, is it a brand new house, an old one, Victorian style, or even a house that has a significant history? That information that you might think is petty is a contributor to your house’s value too.

How much Personal Property should you have?

Your property coverage must be able to cover all your possessions. And to calculate how much is the value of all of your stuff, it takes a lot of patience and focus.

The details are important. And just like what I always suggest to my clients, the key to properly determine the value of your stuff is by making a list of them.

Start by going into each room and list everything that you can see. Make sure to list even the smallest stuff. Many think that listing the small things doesn’t affect much, but that is wrong! Just imagine not including the cutleries, pillows, blankets, and even rugs. You might think that it doesn’t cost much but do you have any idea how much things cost nowadays? You certainly get surprised once you realize how much it will cost you to buy them again. That is why my strict advice to my clients is never missing on listing any stuff.

Also, taking photos of your possessions and putting labels and costs on it is a must. That way, in case you need to file a claim it will be easier to process it because of your detailed list. 

Moreover, make a separate list for your over the top possessions like expensive pieces of jewelry, furs, paintings, extravagant vases or glass, musical instruments, collections of bags and shoes, and even guns. Make sure to label the list with the amount and if possible with receipts.

The reason to why you need to have a separate list for these pieces is because you might need extra coverage added to your policy. Things that have too much value is not easy to replace, remember your home insurance coverage has limits. That is why it’s best to seek professional advice on what is the best option for this. 

Liability Coverage

The main role of liability coverage is to save you from lawsuits. Most homeowners’ insurance has a minimum of $100,000 in liability coverage. Therefore, you should have at least $300,000 to $500,000 coverage to ensure that you will not be underinsured.

There are lots of things that can happen on your premises especially accidents. And once someone gets injured on your property, facing a lawsuit is not impossible. Let say a visitor accidentally fell on your porch one rainy day.

Your visitor, unfortunately, broke his leg and filed a lawsuit against you due to the negligence of having a slippery floor. In that case, since the accident happened on your premises, that will be covered by your liability coverage, and the medical and legal costs are all shouldered.

However, certain accidents are not covered by liability insurance including dog bites of specific dog breeds such as Doberman Pinschers, Pit bulls, Chows, Rottweilers, Wolf-dog Hybrids, Great Danes, Siberian Huskies, any mix of these breeds. It is because these breeds of dogs are considered high-risk by most insurance companies. So if ever that you own any of these breeds, be aware that whatever incidents caused by your dog won’t be covered under your home insurance. 

Truly that you can never know when an accident can happen, but the good thing is you can be prepared for it by buying enough liability coverage.

Is Additional Living Expenses (ALE ) Needed?

From a professional insurance agent’s perspective? Yes, It is needed! Just think what will happen if a qualified peril like a hurricane destroyed your house from the ground and make it inhabitable

How long do you think it will take for it to be rebuilt again? From my experience with my clients, months of waiting is one in a blue moon. Most took a year or so.

So imagine, if your house becomes inhabitable, where are you and your family ( if you have some ) going to live? It’s good if you have some relatives that can accommodate your entire family until your house is ready. But what if there’s none? ALE is the answer to that! It is like a fund that is just waiting to use in times like this. Therefore, you don’t have to worry about your living expenses while waiting for your house to build. 

Need more information?

If you want to know more about Homeowners Insurance or you’re asking whether “how much dwelling coverage should I have?”. Contact us! Together with our whole company will be happy to provide you with all the necessary details.

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