Whether you’re at home or away, you want to know that your belongings are protected. That’s why everyone needs homeowners insurance. It protects your home and belongings in case of fire, smoke, vandalism, theft, hail or similar events. It also covers your personal liability in case someone is injured while on your property.
It’s important to remember that you will usually have to purchase additional coverage if you want to insure your home in case of flood or earthquake–luckily earthquakes aren’t common in Colorado and flooding only happens occasionally. Other things that aren’t covered by most basic policies are scheduled jewelry, collectable items, i.e guns, coins. unless you add this coverage by endorsement.
So How Much Insurance Do I Need?
The amount of homeowners insurance you will need to purchase depends on a variety of factors. To put it simply, you will need enough to cover the cost of rebuilding your home based on what it is worth today. Depending on the bank your mortgage is with, you may need to purchase enough coverage to cover the amount of the mortgage.
Some factors that cause the price of your policy to vary are the age of your home, the coverage, limits and deductibles you pick and where your home is located. If you live in an area prone to severe weather, you may need to pay more.
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Your Home’s Rebuilding Costs
You can estimate how much it will cost to rebuild your house by finding out the average cost per square foot in the place your home is built. Keep in mind that any upgrades your home has, like custom woodwork, arched windows or other specialty features, will cost more to replace. So you will need to buy additional coverage if you want these items to be covered too. Here are some other features that can add to your rebuilding costs:
- A finished or partially finished basement
- Additional rooms
- Garages or sheds on your property
- A fireplace or other similar feature
Your agent can help you figure out how much your home will cost to rebuild. If you want to get an idea before talking to an insurance agent, you can consult your real estate agent or your local building association. You can also hire a surveyor if you want an exact figure. It’s important to purchase enough coverage to cover the rebuilding of your house in the case of total destruction because if you don’t, you will be the one who has to cover the difference.
Replacement Cost Policies
Most policies cover replacement cost for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality. There is no deduction for depreciation or decrease in value due to age, wear and tear. Not all home insurance policies have replacement cost.
Guaranteed or Extended Replacement Cost Coverage
Extended replacement coverage will pay an additional percentage set by the insurance company above your building coverage limit if you need to rebuild your home. With guaranteed or extended replacement cost coverage, you will pay more in premiums, but your home will have more extensive coverage.
If you don’t have either of these types of coverage and your house burned down, for example, you might get enough money to rebuild your home, but it would only pay for the bare minimum. So if your 3-bedroom, 3-bathroom house was worth $280,000, you might only get $200,000 to rebuild because that is technically what it costs in your area to build that type of house.
Law and Ordinance Insurance
Building codes change periodically, so if your house is badly damaged and you are forced to rebuild all or part of the home you will need to make sure that all the new areas that are built are up to code—and this can cost you.
A few companies offer policies that will pay for you to have your home rebuilt to code if it’s destroyed, but that isn’t’ the norm. In order to be protected from these extra expenses, you will need to buy law and ordinance insurance in addition to your homeowner policy. It isn’t that expensive, and it can save you a lot of money if your home is partially or completely destroyed.
Inflation Guard
As time passes, your home value might decrease or increase depending on a variety of factors. Since your home insurance doesn’t increase as the value of your home does, you might be underinsured and unable to rebuild your home for what it currently costs. That’s where inflation guard coverage comes in. It helps you keep up with inflation by increasing the amount your home is insured for by a certain percentage each year.
What if I Have an Older Home?
Older homes can be great. They are full of character and unique features that oftentimes aren’t found in newer constructions. You want to protect the features that make your home amazing and unique, but there are some common factors found in older homes, like old wiring, outdated plumbing, vulnerable roofs or old appliances.
Replacement cost policies are usually what owners of older homes want to purchase. Instead of giving you cash value for the repairs, a replacement cost policy will pay you the full cost to repair or replace your home, up to your limit.
In order to protect you from the unique challenges your older home might present, you may want to add additional protection as well. Luckily, at AMERICAN CAPITAL INSURANCE, we shop around on your behalf until we find the right coverage for all of your needs.
Insuring Your Personal Possessions
Another great thing about homeowners insurance is that it covers your belongings if they are damaged or stolen. There are two ways that the company can replace your items: actual cash value coverage or with replacement cost coverage. Actual cash value would cover the fair market value of your items (replacement cost minus any depreciation). Replacement cost coverage would pay you how much it would cost you to re-purchase the item at the time of your claim.