Homeowners Insurance: How Much Do You Really Need?

Homeowners insurance protects your home and your belongings, as well as yourself and anyone on your property. For example, in an event of a fire or flood, it will pay for the rebuild of your home and replacement of everything in it. If someone gets injured inside your home, it can also pay for the costs of hospitalization. But, with all the flavors of home insurance available, which one should you get and exactly how much do you need? Let's take a look at the different types of insurance, so you can decide what's best for you.

The most basic homeowner's insurance protects your home from certain common disasters, paying for the rebuilding and replacement of everything inside. The must cover you for the amount that the home is worth when it was damaged. The insurance company will take everything in your home, that means everything that's part of the home, from the marble countertops to the hardwood floors, basically everything permanent inside and the house itself and determine how much it would cost them to replace it. The thing is, once they determine the replacement costs, you must get a policy that covers equals this amount.

An additional coverage you can get is protection of personal property. You can get this to cover everything inside your home that isn't permanently nailed down. Usually, they determine the value of your belongings, not with the actual value, but about 50 - 70% of what the replacement cost. So for example, you are moving to a new home that the insurance company determines would cost $500,000 to replace, then the minimum you can get for personal property would be $250,000.

Finally, you can also add liability coverage that covers you if someone gets hurt while you're on your property and they take you to court. While you might think that if you have a dinner party and your friends woudn't sue you, what about strangers? What if the delivery guy slips on a broken tile on your porch or if your repair guy falls from the ladder? Usually, you should be covered up to $300,000, but think about those million dollar lawsuits, plus court and lawyers costs. These may not be enough, and you'll need something that covers your net worth.

Now that you know the basics, you should also need to know what's not covered, which is basically some natural disasters that are uncommon, like earthquakes., mudslides, flood. etc. Items of high value, like antiques and jewelry are not covered either. You'll need to get additional insurance for these.

At the very least, your mortgage company or bank will require you the most basic home replacement insurance and to have at least 80% of the replacement value, because it's highly unlikely that your home will be completely destroyed. For your personal possessions, do your own inventory and determine what the value is. And for liability insurance, you'll have to determine your net worth. Consider everything, your salary, property, home equity, investments, your business if you have one, minus and debts. If everything adds up to more than $300,000 you may need more coverage.