Figuring out how much homeowners insurance you need:
100% of the replacement cost of your house
Most insurers suggest you insure your home for 100% of its replacement value—enough to cover the cost of rebuilding your house, excluding the land. This is not the amount you paid for the house, because the present cost of rebuilding it may be more-or even less-than you paid. It is not the market value of your house, i.e. how much you could sell it for, which may depend upon its area or location. It is simply the cost ofrebuilding your house at current construction costs.
Whether you purchase 100% or 80% replacement cost coverage, you’ll only collect up to the total amount of your coverage. The more limited your coverage, the lower your premium --but if you have a loss, your recovery may be less. If you insure your home for $150,000, that’s how much you will receive in the case of a total loss, even if the true replacement cost for your home is $250,000. Keep abreast of the replacement cost of your home in terms of inflationary values of material and of improvements you’ve made, and increase your coverage accordingly.
The contents of your house/personal property coverage
This is mostly furniture, but also jewelry (up to a certain value), electronic equipment, furs, paintings, etc. Most homeowner’s policies consider the cost of your contents to be approximately 50% of the amount of insurance you have on the house itself. If you think this is less than enough or too much, you might want to do an inventory of your furniture and personal possessions, listing all the furniture and items you want covered (it’s even better totake pictures of the contents and to keep a copy of this information in a separate safe location).
The cost of living elsewhere
If your home is damaged, you may need to live elsewhere while it is being repaired. Coverage should cover meals, hotel bills, and other living expenses incurred while you’re out of your home. Keeping receipts helps in expediting recovery costs.
Your liability to others
This covers you in case someone is hurt in your house or on your property, or if something in or around your house causes property damage to another house. Liability insurance covers legal bills in the event of a lawsuit.