How Much Insurance Should You Take Out On Your Home?

28 December 2017

There is no single number that can correctly quantify the amount of insurance that would be right for any and all houses. The amount of insurance that will work for you may not work for someone else. It's however important to ensure that you don't  get too much or too little insurance on your home. Under-insuring your home will leave you with a deficit if disaster strikes and over-insuring will be an unnecessary expense.

Types of Coverage

A typical home insurance policy will cover six main things:

• The Dwelling: This covers damage that is done to your house and structures that are attached to it such as a garage.
• Other Structures: Fences, sheds, freestanding garages and other structures that are part of your property but not attached to the main house fall under this.
• Personal Possessions: These are the things that inside your house such as appliances, furniture, decorations etc. The cost of these will be covered if they are stolen or damaged.
• Loss of use: In case your home is damaged in some disaster to the point where you can no longer live in it, this will cover your living expenses while your house is being rebuilt/repaired.
• Personal liability: You might get sued if somebody gets injured or their property damaged while inside your property. The cost of such a suit is covered under this.
• Medical Payments: This covers medical bills in case somebody is hurt while on your property.

Dwelling and Personal Possessions Coverage

Dwelling and personal possessions are the greatest determining factors for how much insurance you should take out. The coverage for dwelling should be enough to cover the cost of completely replacing your home in case it's completely destroyed. Even if such an event is highly unlikely, should it happen, you will not want to have an insurance that leaves you short.

It's not easy to determine the exact value of the personal possessions in your home. A recommended guideline is 50-75% of the dwelling coverage. The cost of furniture, electronics and other items can be significant.

Deciding on the Ideal Deductible

The deductible is what you'll pay before insurance can come in to cover the rest. It's a good idea to go for the highest deductible that you'll be able to afford in order to reduce your monthly payments. Just don't bet more than you can lose in order to reduce your upfront insurance costs.