There are a lot of questions that come along with buying a home. People ask things like “What down payment will I need?” “How much can I afford to pay?” “What neighborhood is best for my family?” After all those questions are answered and you finally find the house that works best with your family, then you have to make sure your brand new asset is protected. The issues that comes along with this is that many people don’t get the right kind of coverage for their home, for which they end up underinsured.

There are a few questions you need to think about to guarantee you are insured properly. You need enough insurance to cover the following: the structure of your home, your personal possessions, the cost of additional living expenses if your home is damaged and you have to live elsewhere during repairs, and your liability to others. This means that you need to determine the cost of each.

The Structure

You need to have enough insurance that it covers the cost of rebuilding your home. You may think that this cost is the price that you paid for your home, but this isn’t necessarily true. The cost of your home has a lot to do with the market. The cost of your home also factors in the cost of the land, which you don’t need to include when determining the cost of rebuilding your home. The cost of rebuilding could be more or less than what you paid for your home.

Some banks require you to buy homeowners insurance to cover the amount of your mortgage, but this is just them looking out for themselves, it isn’t about protecting you. It’s them protecting their investments. Keep in mind that even if your mortgage is paid off, you shouldn’t cancel your homeowners policy since it protects you from the unpredictable.

In order to determine the cost it would take to rebuild your home, you need to do research. Multiply the total square footage of your home by local building costs per square footage. You also need to find out the costs in your community. Call your local real estate agent, builders association, or insurance agent to learn about current construction costs. Standard homeowners policies provide coverage for disasters like fire, explosions, or theft, but they don’t usually cover floods, earthquakes, or damage caused by lack of maintenance. This is something you need to keep in mind.

Your Personal Possessions

Most homeowners policies only cover about 50-70% of the amount of insurance you have on the structure of your home. To determine if this is enough coverage for you, you need to conduct a home inventory. This means that you have to create a detailed list of everything that you own with as much information as possible related to the cost to replace each item if it was stolen or destroyed. You also need to make sure that you keep this list somewhere safe that isn’t inside your home. Nowadays, you can create and maintain this list online so that you can access it from any computer or mobile device. If you don’t like this idea, then a safety deposit box is also a good choice.

Additional Living Expenses

One thing that people don’t often consider when they are getting a policy is that if something were to happen to their home, they would need to pay for additional living while their home is being repaired. The coverage for additional living expenses differs from company to company, but most places provide coverage for about 20% of the insurance that is on your home. Talk to your agent to make sure you know exactly how much coverage you have and how long the coverage will be in effect.

Liability to Others

Sometimes there are liability issues that come up when a disaster occurs within your home. This part of your policy covers you in case there is a lawsuit for bodily injury or property damage that you or your family caused another person. It also covers damage that your pet could have causes. It pays for the cost of defending you in court and for any damages that the court rules you must pay.

You need to consider all of these things when you are deciding on your homeowners policy. Consider what each individual part of your home is going to cost you instead of just bulking it together as a whole. You might be surprised at what the cost of everything put together actually is. So do the proper research so that you don’t end up losing everything if a disaster occurs.

Resources:

http://www.iii.org/article/how-much-homeowners-insurance-do-i-need