How Much Home Insurance Do I Need?

Homeowners need enough home insurance to help them not only be able to restore their homes after a loss, but capable of rebuilding in the event of a monumental loss. Not all losses are equal. Some roof damage from a hail storm is enough to ruin anyone’s day, however, the costs to restore this damage pale when compared to other perilous events such as a fire burning down your home. Big or small, homeowners handle the task of protecting their homes.

A home insurance policy also has more responsibilities than keeping your home safe. A standard home insurance policy (HO-3) will also allow for protections towards additional structures on your property as well as your personal belongings. Each policy will come with limits associated with its different coverages and it is important to consider these limits in the same way you would consider the amount of coverage needed for your home’s main structure.

Overall, homeowners don’t have to go overboard, but should also be prepared for the worst. Many different variables can occur as every home is different, so too are the needs of that household. Whatever you can’t afford to restore after a major loss whether it be your home, personal belongings, or additional structures on your property, you’ll want to make sure they are covered. Failing to do so will provide you with unnecessary financial hardships in the aftermath of an already stressful situation.

How To Determine Your Home Insurance’s Policy Limits

Considering inflation, it is reasonable to expect the cost of restoring your home will only go up. There are building materials to consider as well as the increase in labor costs. Nobody can predict the future, but it is important to consider having policy limits that can keep up with the amount it will cost you to rebuild your home after a disaster.

Take a closer look at some of the normal coverages your policy will hold and the policy limits typically associated with the coverage:

• Coverage A: Dwelling- Your dwelling coverage is where your home’s structure gets its protection. This is the largest part of your home insurance policy and all homeowners should aim to have enough coverage to fully restore their home in the event of a total loss. The amount of coverage you select here may also affect your policy limit under Coverage C: Personal Property.
• Coverage B: Other Structures- Losing a detached garage, shed, or fence isn’t necessarily the end of the world, however, you’ll still want to have them covered from potential harm. A typical policy will cover the other structures on your property as much as 10% of your home’s total value. Homeowners with substantial additional structures such as a detached apartment or a guest home may want to consider a higher policy limit. Raising your policy limit will come with higher premiums.
• Coverage C: Personal Property- Massive losses to your home often come with massive losses to your personal property. While your home insurance offers coverage to help restore such losses, homeowners may run into problems with more expensive items. For example, receiving compensation for your clothing and furniture is possible, however, designer pieces and valuable sofa sets may require more coverage. It is commonplace for a home insurance policy to offer between 25%-50% of your policy’s coverage limits towards your home. If you require additional coverage for valuable items such as collectibles, instruments, electronics, etc., you’ll want to add scheduled personal property coverage to supplement or consider an HO-5 home insurance policy.
• Coverage D: Loss of Use- Also known as additional living expenses (ALE) insurance, Coverage D helps you pay for lodging and dining expenses while you are displaced from your home due to a major loss. But this doesn’t mean it’s champagne and lobster dinners every night, policy limits apply. An HO-3 policy will often provide up to 20% of your home’s value as compensation for such expenses.

In addition to taking care of your home and property, your homeowners policy will also help protect you against liability claims. This is to help offset the legal and medical expenses you might otherwise incur should someone visit your property and become injured. You’ll want to maintain enough coverage to help offset rising costs associated with injuries, but without overdoing it causing yourself to overpay for insurance. Learn more about these protections and the policy limits that come standard with most home insurance policies:

• Coverage E: Personal Liability- Visitors that injure themselves on your property find themselves paying expensive medical bills. As the homeowner, you can be held liable for such expenses and any potential legal fees that stem from the matter. This is why personal liability coverage is so important. We recommend that homeowners maintain a minimum of $100,000 to combat these expenses. If you are looking for additional coverage, instead of increasing your policy limit, umbrella insurance is an affordable option that can help you gain an additional safety net without overpaying.
• Coverage F: Medical Expenses- Specific to the injuries of visitors, a home insurance policy will normally grant no more than $5,000 for this protection.

The keys to determining your policy limits are to know your risks, speak with an expert, and consider how much you can afford to spend out of pocket to restore major losses. Your goal should be to ease the pain of suffering a major loss without overpaying for coverage you are unlikely to ever need or being undercovered against viable threats to your household.

Factors That Affect Your Policy Limit Needs

Now that we’ve established each coverage and the standard ways policy limits apply, it’s important to explore the factors that can determine your home’s coverage needs. Failing to have enough protection is never advised, and by assessing your needs with a licensed insurance agent, you can find the sweet spot that protects your investment without overpaying:

• The cost of building materials to restore or rebuild your home. You’ll want to consider that these prices are likely to increase over time.
• Your home’s size, building materials, and renovations will also affect construction costs and value. You’ll want to cover your property with an appropriate amount that reflects as such.
• The amount and types of other structures on your property.
• The age of your home can cause construction costs to rise mightily. Your home may also not be up to modern building codes, which may need to be rectified during restoration. These additional needs can add to your costs and may mean your home requires a higher policy limit.
• Your personal possessions may require exceptional levels of coverage if they are worth a sizable amount.
• Assess the level of risk your liability may undertake by auditing your habits. If you are a homebody with few visitors, you may be able to use lower policy limits; whereas, a homeowner with multiple kids, plenty of visitors, and an active lifestyle may be at a higher risk of someone suffering an injury while on their property. Again, umbrella insurance policies can also help you achieve next-level protection in this area.

Even comparable homes are often much different when looking below the surface. Each household has its lifestyles, habits, possessions, and even building materials. Your home is unique and deserves coverage that reflects its specific risk. Take the time to assess the individual factors affecting your home and choose a specific coverage option that works for you.

Higher Policy Limits Mean Higher Home Insurance Premiums

If you are looking to raise your standard home insurance policy limits, you should expect higher premiums in exchange for better protection. The amount of coverage you require is one of the many factors that go into crafting your home insurance premium including your home’s age, location, the building materials used to construct your home, etc. Each insurance provider will assess these factors according to their own metrics and devise their own premium rate. The more risk you carry and the more coverage you need, the higher your rate.

Because of these different factors and calculations, homeowners can find themselves facing a variety of prices for their coverage. If you are shopping for home insurance, you’ll soon realize that the best route to go is to compare your coverage needs among a range of insurance brands. This is also a very time-consuming endeavor that can be quite frustrating. Here at Freedom Insurance Group, we’ve partnered with 25+ top-rated insurance companies to help quickly identify the best price for our clients’ home insurance needs.

We’ve been helping homeowners like you save 40% on their home insurance policies. Our agents are ready to serve the state of Texas through diligent customer service and expert industry knowledge. We help you identify the right policy limits for your home at the lowest price on the market. You’ll also receive the best discounts and bundling opportunities, such as with your auto insurance policy, that help you earn the maximum savings without forfeiting protection. Use our free online homeowner insurance quote tool for a quick, accurate estimate, or contact us today!