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how much home insurance do i need

How Much Home Insurance Do I Need?

Part of the American dream includes buying a house and making a warm and comforting home out of it. But what if something were to happen to your house, and things fell into a downward spiral as a result of natural disasters, fire, or other damage?

Would you do the sensible thing and call for reinforcements, or would you just give up?

Any smart American who cares about their home will first evacuate themselves and their family and then call for help. This is where home insurance comes in. In the state of an emergency home crisis, you can always expect your insurance company to have your back.

However, many people get rejected by their home insurance company for a remarkably simple reason: they just haven’t bought enough home insurance (or the right type of home insurance) to cover the damage they face.

That’s right. Up to 60% of American homeowners realized they had insufficient home insurance after the disaster had struck…but by then, it was too late.

It’s important to know how much home insurance you truly need, or else you might find yourself in a position similar to the one outlined above. To help you avoid the mistake of buying insufficient, inappropriate, or even too much home insurance, we have laid out everything you need to know when making the purchase in the guide below:

Why Do I Need Home Insurance?

Below is a list of the most important reasons why you need home insurance coverage:

  • Rebuilding your home after the disaster
  • Replacement of personal property
  • Covering any injuries and damage that may have happened on your property (liability)
  • To help you cover additional living expenses after you’ve lost your home (insurance can help you pay for temporary housing while your own home gets fixed)

These are not just small perks. In fact, they are massive benefits and are only available if you have the right kind of home insurance set in place beforehand.

Paying for these things without insurance assistance can rake up a fortune and have you taking out heavy loans. Luckily, having the right amount of home insurance can help you avoid that hassle.

How Much Dwelling Coverage Do I Need?

Dwelling coverage is the aspect of homeowner’s insurance that will help pay for any rebuilding or repair work within your home. This includes the main house as well as your garage, deck, porch, and other attached structures.

Under ideal conditions, your dwelling coverage should equal your home’s replacement cost. However, this doesn’t mean that your dwelling coverage needs to cost as much as your house does. Instead, it means that the amount of money it would take to completely rebuild your home and its attached structures should equal your dwelling coverage.

If you’re uncertain about how much this would add up to, try reaching out to a reliable insurance agent, real estate consultant, or appraiser for help.

Rebuilding costs vary depending on where you’re living, so be sure to consult professionals from the local market for help.

Personal Property Coverage

This type of coverage should be sufficient to be able to replace everything you own that you’ve placed within your house, with the exception of the house itself (which will be covered by dwelling insurance).

This includes expensive belongings like large appliances, home gym equipment, furniture, electronic devices, clothes, toys, and more. Everything and anything non-living that’s within your house will come under personal property coverage.

This type of coverage comes in handy if your belongings are destroyed by conditions that come under your insurance policy. It also serves to guarantee your product replacement in case of theft or vandalism.

You should essentially have enough coverage for it to be able to replace your belongings. Many people have trouble estimating exactly how much this amounts to. To help you make a fair estimate, try jotting down an inventory list of everything you own and then noting each item’s price next to it. 

Expensive or rare items should have a separate list because they will cost significantly more to replace. This includes jewelry, expensive musical instruments, top-notch sports materials, and original artwork. Some companies may expect you to buy additional insurance to cover such products simply due to their high cost of replacement.

Liability Coverage

There is no hard and fast rule when it comes to owning liability coverage. This type of coverage will help pay for damage repair if someone is hurt on your property. Here is a list of common events that lead to people claiming liability coverage:

  • Pet bites: Dog bites are a nasty favorite in this category. Not all pets (and dog breeds) are covered by every insurance policy. Some companies will prompt you to buy additional coverage if you own a pet that’s more likely to engage in high-risk behavior that could potentially cause harm to others or to your personal belongings.
  • Accidents at home: Interestingly, you are liable to pay up if someone enters your property without being invited but ends up getting hurt on it.
  • Trees: Falling trees can lead to an expensive liability case if they cause damage to your property or a neighbor's.
  • Intoxicated guests: If you find yourself with a severely intoxicated guest and they end up harming your other guests, neighbors, or property, you may have to tap into your insurance policy’s liability fund for help.
  • Domestic workers, who get injured: Do you have a maid, a nanny, a driver, or a cook working within your household? If they end up getting hurt, you may have to cover damage costs, which is why it helps to have a reliable liability coverage scheme to back you up.

Most homeowners keep around $100,000 for liability coverage. However, the more you have, the better, especially if you’re prone to experiencing any one or more of the experiences listed above.

Coverage for Additional Living Expenses (ALE)

Additional living expenses are often overlooked. However, they are just as important as the other types of coverage, so it’s important that you look into and set apart an individual budget for them.

Most people set apart 10-30% of what their dwelling coverage costs for ALE insurance. ALE coverage comes into play when you need someone to pay for your living expenses and accommodation while your house is being repaired after experiencing severe damage that required evacuation.

It is essentially an emergency fund that comes into play during temporary home displacement. Important things like hotel/motel expenses and meal costs are covered by it. Many families and individuals end up having to get their meals from restaurants because they don’t have a place to cook while they are displaced from their homes. Additional ALE costs may include laundry, rented furniture, household item storage, and pet boarding.

The average homeowner should aim for 20% of dwelling coverage for ALE. However, those with larger or smaller families can change this percentage value as they see fit. More people living in the same home means you’ll need higher ALE coverage as they are more people that need to be fed, sheltered, and taken care of.

You should book an appointment with your insurance provider to help you decide how much ALE coverage is ideal for your home and its inhabitants.

Final Thoughts

Keeping your house and its tenants safe should be an absolute priority for every homeowner, regardless of whether they live alone, with a pet or partner, or with their family.

If you haven’t yet signed up with an insurance provider or are still trying to understand how much home insurance you’ll need, log on to QuoteLab to apply for home insurance quotes from our multiple insurance carriers to compare quotes and pricing. This will help you get the best deal at a price that’s suitable for you! 

All in all, it’s important to know exactly how much insurance you need and to apply for coverage accordingly. This will help you and your pet and family stay safe if a crisis ever strikes.