How Much Insurance Should I Have On My Home?
This is a question that I get asked frequently. The amount of Homeowners Insurance that Homeowners need is not based on their mortgage loan amount, their home’s appraised value, or their home’s tax assessed value. The amount of insurance that should be placed on a home should be the home’s replacement value. Many mortgage lenders will request an amount of insurance to cover the amount of the loan at the time of purchase. They should, instead, be requesting 100% replacement cost coverage. It is important to remember that your home insurance will cover your home, as well as it’s attached, and detached structures. Homeowner Insurance does not cover the land/lot that the home is built on. A home’
s mortgage is for the home and land/lot.
Replacement Value is the actual cost to replace the home should it need to be rebuilt on its existing lot, built to the same quality, and using the same materials. When we calculate the replacement cost of a home we use an estimator that takes the home’s details into account to establish an appropriate value. We use the home’s age, construction type, exterior building materials, square footage, foundation type, roof type, attached structures, interior fixtures, heating details, cooling details, debris removal, and labor costs to estimate the home’s replacement cost. This value appears on your insurance policy as Coverage A.
Replacement costs of homes can change over time due to several factors. Labor costs and the costs of materials are the most common reasons for a change to a home’s replacement cost. We recommend that homeowners review their home insurance policy periodically. A home’s replacement cost can be adjusted at that time. It doesn’t pay to over or under insure your home, as your home insurance policy will only provide coverage to replace the home or provide coverage up to the policy’s limits. If you have questions about your home’s replacement cost or any other homeowner insurance question, feel free to contact us.