If you own a home, you absolutely must have homeowner’s insurance. How much homeowner’s insurance you need is the difficult question for most people.
Evaluate your Home
In order to determine how much homeowner’s insurance is necessary, you should evaluate the value of your home, not counting the land, and all of your personal property within your home. How much will it cost to rebuild your home if it was completely destroyed? An insurance agent is trained to assist you in figuring out this dollar amount, and most will physically visit your home before insuring it. There are formulas that homeowner’s insurance agents take into consideration for determining replacement value, that include whether the home is brick or wood frame, the total area of the home, number of rooms and other details that enable the agent to determine an accurate replacement cost value. Some homeowner’s also pay to get a contractor estimate for rebuilding their home.
Evaluate your Property
With a piece of paper, go through every room of your home and list each piece of furniture and fixture that’s in it. If possible, you should include receipts that show the purchase price and date purchased. Take photographs of major (more expensive) items. Your property inventory should be updated on an annual basis, or at least whenever you make a major purchase for an appliance or piece of furniture.
A videotape can be helpful for recording our inventory. When using video, open the drawers of your dressers and cabinets, and closet doors in order to get a visual of what is inside each piece of furniture. While you videotape, you should record an audio description of major items.
Store your inventory list and/or videotape in a safe deposit box outside of your home, or at a friend or relative’s home- or even your workplace. That way, if something happens to your home, you’ll have your records.
Replacement Cost or Actual Cash Value?
There are two main types of homeowner’s insurance- replacement cost and actual cash value. When you have the approximate value of your home and all of it’s contents determined, then you decide whether or not you want to insure your home against the replacement cost or actual cash value basis. If you use replacement cost, then your home will be rebuilt based on that value. If you choose actual cash value, you will receive the amount payable to you if there is a loss- the amount is determined by the current replacement cost of the homes contents minus estimated wear and tear and depreciation.
Additional Homeowner’s Insurance Coverage Options
In addition to insuring your home against it’s value and the value of it’s contents, homeowner’s insurance can also be taken with extended coverages, including:
Increased limits of liability: generally, homeowner’s insurance includes personal liability and medical payments of $100,000 per occurrence and $1,000 per person for medical payments but higher limits can be purchased.
Home computer: homeowner’s with personal computers are limited by the available limit for personal property for their computer values. If the computers are used for business, they can only be insured up to $2,500 although if you feel higher limits are necessary for the amount and expense of your computer equipment, you can purchase higher limits.
Workers’ Compensation Insurance: When people are working for you at your place of residence- yard work or household chores for example, this portion of insurance covers most employees who are working for you less than 40 hours per week.
Home Day Care: When you watch children in your home for a friend or relative, with no exchange of money, your homeowner’s insurance provides coverage for day care activities. If you are providing day care services for money, it is considered a business and you must purchase additional insurance to cover those activities.