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How Much Should I Insure My House For?

How Much Should I Insure My House For?

March 04, 2020
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Homeowners’ insurance is always a good choice to protect your investment. When you purchase your dream house, you will surely do anything to keep it and not go anything to waste.  Even you pay a mortgage, homeowners’ insurance is always required for you to get a home loan. Your lender will almost always require you to purchase insurance before the company sign your loan because this will protect the lender’s interest in your home. Your home insurance premium is typically paid monthly along with your monthly mortgage payment.

So how much should you insure your house for?  This is the first question that will come to mind once the owner of a house decided to insure their home.  And for you to know how you can come up with a specific amount, you must know first how to calculate the breakdown of the sum-insured cover. 

Sum-insured-Is the maximum amount of money you can claim. For example, your home is insured for $600,000, and your contents total is $150,000, then your sum-insured total will be $750,000.

The sum-insured total must cover all the costs needed for your house to be fixed as before. Think of all the things needed to rebuild your house using the same materials, and how much will it cost if you buy those materials today. Of course, the amount of those materials is different today from how they had cost before the purchase of the home. That’s why making an accurate calculation is vital. Because once the insured amount is less than the actual cost of the overall amount that costs you to rebuild the house/ fix the house, then that will be a problem for you.  Of course, you don’t want to be underinsured so to make sure that your calculation is correct you need to know how to properly determine the value of your house. Though on average, the minimum amount of policies is $100,000 in liability coverage. Still, it’s best if you at least insure yours for around $300,000-$500,000 or higher if you can. If you’re on a tight budget, don’t fret because you can always add additional coverage. Don’t hesitate to purchase as much as possible if you can pay, because liability is the greatest buy in the insurance world. And yes, some may overstate the value of their house, but mind you, even you overstated it,  your insurance company will still pay only the exact amount of damage your house has. It means even you insure the house for let say $500,000 and your insurance company just calculated the lost for only $350,000 then that is just what you are getting. Over all, overstating the amount doesn’t count.

How can you get the total building cost? 

Well first, you need to know the basics. How much will it be to rebuild your house the same as before? Think about all the details about your home.  This is the first step for you to determine how much you need to insure your home. Start with doing a list of these:

  • Materials that were used to build the house like what kind of cement, tiles or wood. What is the quality or prestigious. 
  • What are the features of the house ( Is there any garages,  balcony, how many bathrooms, security system, heating and air-conditioning, lighting, gazebo,  swimming pool.) 
  •  Know the period of construction. Is it Victorian, Federation or Contemporary?
  • Be mindful of all the changes that were made or renovations like changing the carpets to vinyl tiles.  

Things like that are important for you to determine the right amount of your house. And remember, you just need to insure the house itself, not the land, so make sure to just list everything in your house alone. 



Calculating the size of the house per-square-meter, and how does it work.

The National Average is $91.51 per square foot. But of course, the cost of your house may vary depending on the average building cost in your area. Homeowners in states that are prone to hurricane, hail storm,  tornado, earthquake and other perils usually pay the most for home insurance by adding extra coverage. This year 2019, Louisiana, Texas, and Florida are the most expensive states who pay for home insurance. Since different states have their own rates,  for you to have the right calculation, your best option is to consult it to a licensed insurance agent. These agents have their calculator where they just need to simply enter your ZIP Code and the square footage of your house to get the right computation.




Calculating the house content’s amount

This may be overwhelming at first,  but the trick here is doing it little by little.  Start with going to each room and again… make a list.  However this time you need to be more artistic like taking pictures and putting labels with the price of your valuables like:

  • Furniture ( couches, dining sets,  lamps, cabinets, closets)
  •  Appliances (television, refrigerator, oven )
  • Jewelry
  • Decors like paintings, figurines and art décor
  • Bedsheets and linens
  • Kitchenwares ( cutlery, pans ) 
  • Groceries ( estimated amount of the food you have in your kitchen )
  • Bathroom content ( bathtub,  jacuzzi ) 

By making this list and pictures it will be easier for you to remember those things.  It is also a big help if you can keep the receipts because by that you can exactly know the amount you pay for that item. And if any case that you might need to file a claim, having these proofs can make the process faster for your claim. 

Now that you already know how to calculate the sum-insured amount,  the next thing that you need to consider is the coverage of your insurance. You may come up with an amount for your house insurance but does it cover the policies that you want?  In other words, aside from knowing the sum-insured amount of your house, you must know as well the coverage of the insurance that you’re eyeing.  

Most standard insurance policies include coverage of these three categories Dwelling,  Personal Property, and Personal Liability. Homeowners are the ones who will decide on how much coverage they want in each category.

  1. Dwelling – This will cover all the qualified damages that may happen to your house. Remember, a standard insurance policy doesn’t covers all damages.  So your house can be repaired or rebuild if, for example, the reason for the damage is from fire or drastic wind which are covered by standard insurance. 
  2. Personal Property- When a qualifying event damaged your appliances,  furniture, jewelry, and other personal belongings then it will be replaced. 
  3. Personal Liability – This coverage protects the homeowner against lawsuits for injury or property damage.  For example, A family driver accidentally fell on your staircase.

 

Though typically the amount that you need to pay per month in standard insurance is $35 for every $100,000 of home value. (but again it depends on your city and state and insurance company) 

Safety net home protection 

Some premium levels of insurance offer this.  If you want to keep your self at ease you might want to consider this option.  Like what I’ve said earlier, there is always a chance that your sum-insured total will not be enough to cover the cost of rebuilding or fixing your house.  That’s why having insurance that offers safety net above the sum-insured amount in the case that your estimated cost doesn’t cover all the expenses is a great deal to have. There are insurance companies that offer the highest coverage which includes natural disaster like bush fires, floods, hail, and tornado damages. Some also covers theft and vandalism. These disasters caused by nature are normally not included in standard insurance.  So if you want to secure your house with the most unexpected calamity, paying extra money to get platinum insurance might be the answer. 

Temporary Accommodation 

Let’s be realistic, having temporary accommodation is needed during the time your home is under renovation. You might need a month or so to stay in a temporary home.  Good thing if there are just minor things that are needed to get fixed, but what if your house needs to build all over again. It may take longer than a year before it gets done.  You are lucky if you have relatives where you and your family can stay there for quite some time. But what if there’s none? Yes, this may be the worse case that can happen. However, as they say,  we should always prepare for the worst right? So if you want to ensure that you’re going to have a place to stay in case the worst thing happens then having a temporary accommodation feature in your policy is a must.  This usually is included in a higher plan.

 There may be too many things that you want to add in your policy just to make sure you are properly insured right.  Once you already gather all the information to calculate your desired policy, it’s best that you shop around first, talk to different insurance companies and ask how you can get a discount.  Some gave discounts if you bundle multiple policies like your home and car insurance policies. So it’s always a good thing to tell your insurance agent about all the things you want to be included in your plan to get the right quotation. Remember,  everything you paid for is always worth it if those things are your needs.