A home insurance policy consists of several coverages working together to provide you with overall protection. While each home policy has its own conditions and exclusions, nearly all standard policies include coverage in three major areas: your dwelling, personal property and personal liability.
Of course, not everyone needs the same amount of home insurance. For a better understanding of what’s right for you, consider the guidelines below.
How Much Dwelling Coverage
Dwelling coverage protects you against damage to the physical structure of your home, as well as attached structures like a garage. If your home is damaged, Dwelling coverage will pay to repair or rebuild it. The amount of Dwelling coverage you need is determined by the estimated cost to rebuild your home, not by its market value.
Rebuilding Costs
You should have enough Dwelling coverage to rebuild your home from scratch in case of a total loss. A good way to determine that amount is to speak with your independent insurance agent or a local builder. They’ll explain the many factors that impact rebuilding costs, including:
- Square footage
- Roof type
- Construction materials
- Labor costs
Inflation Protection
You should consider adding inflation coverage to your home policy, if it’s not already included. Inflation coverage automatically adjusts the amount of insurance you have to match inflation. In other words, if the cost to repair or replace your home goes up due to inflation, your insurance limits go up too.
How Much Personal Property Coverage
Personal Property coverage protects all those possessions you keep inside your home from damage and theft. Examples include furniture, bicycles, electronics, clothing, toys and some jewelry. So how do you know if you have enough coverage? You should figure out the value of your belongings, then consider these factors:
Typical Coverage Amount
Most policies offer Personal Property coverage that is between 50% and 75% of the total insured value of your home. So, if your home is insured for $300,000, you should have between $150,000 and $225,000 of coverage for your belongings. Check the declarations page of your policy to confirm your exact coverage amount.
Actual Cash Value vs. Replacement Cost Value
The difference between actual cash value and replacement cost value is important. Some home policies cover the actual cash value of your items, which means you’ll only be paid what the items are worth at the time of the loss. Other policies cover the replacement cost value of your items, which means you’ll be paid enough to buy new, similar items.
If your policy covers the actual cash value, you can always upgrade to replacement cost value for a few extra dollars per year.
EXAMPLE
A fire damages your sofa, which you purchased for $1,000 several years ago.
- With actual cash value, you’ll receive what your sofa is worth today—which may only be $500 due to depreciation.
- With replacement cost value, you’ll receive enough to buy a new sofa with the same basic specs. In this case, that may be $1,200 due to inflation.
Highly Valuable and Unique Items
Most policies place a dollar limit on coverage for the value of a single item. For example, a standard policy may limit coverage for an individual item to $1,000. However, certain high-value items, like jewelry and furs, may be worth more than that amount.
EXAMPLE
You own an engagement ring worth $3,500. To fully protect it, you could either:
- Purchase a Scheduled Personal Property rider only for this one item, or
- Purchase Blanket Jewelry coverage, which can cover multiple items
Schedule Personal Property pays out the scheduled amount, while Blanket Jewelry coverage pays the actual cash value.
How Much Personal Liability Coverage
Personal Liability coverage protects you if you’re found legally responsible for a loss suffered by another person. It could be damage to their property or an injury.
Let’s say someone slips and falls in your driveway. Personal Liability coverage may help pay for the injured person’s medical bills and the legal expenses you incur up to a set dollar limit. On a standard home insurance policy, Personal Liability coverage is typically $100,000. For some, this isn’t enough coverage, but fortunately higher limits are available.
Umbrella Insurance
Umbrella insurance is extra liability coverage that provides additional protection over and above the existing limits of your home, auto or boat insurance policies. Here’s how it helps you:
- Protects you and your family from large and potentially devastating liability claims
- May provide broadened coverage for certain liability claims that may not be covered by your home and auto insurance policies, such as false arrest, libel and slander
Sold as a separate policy, umbrella insurance only kicks in when the underlying liability limits have been exhausted. For example, if you are found legally responsible for an accident that results in damages of $1,000,000, but you only have $500,000 of Personal Liability coverage, your umbrella insurance can help cover those additional costs.
Learn more about umbrella insurance.
The above content is for general informational purposes only and does not replace or modify any provisions, limitations or exclusions contained in any insurance policy. Links to third-party websites are provided as a convenience and are for informational purposes only; they do not constitute an endorsement of any products, services or opinions contained therein. Plymouth Rock is not responsible for the accuracy or completeness of the content on these sites.
