Determine your insurance needs
Hopefully, you now realize the importance of having the right type and amount of insurance coverage. The next step is to correctly determine your specific homeowner's insurance needs.
So, how do you go about determining your specific insurance needs? Once again, the first step is to get educated. This will help you immensely in understanding the various types of coverage, and in identifying your general needs, or at least what aspects of coverage you don't need. Then you will be prepared to determine your actual insurance needs.
There are four aspects to determining your needs: 1) cost to rebuild your home (dwelling and other structures), 2) cost to replace your home contents (personal property), 3) liability and medical protection, and 4) other coverages.
Rebuild your home
The first step is to determine how much it would cost you to rebuild your home. For this exercise, you should assume that your home has been destroyed beyond repair. The costs involved will then include clearing the debris off your lot, rebuilding the entire structure, inside and out, and living expenses for your family while your home is being rebuilt.
Unless you have a huge home, you might allow $3,000 to $5,000 to clear your lot and remove all of the debris. This could include bulldozing the remaining structure, eliminating trees, removing water from a basement, etc. It also will cover the removal cost.
To replace your house, you will need to determine the average local building cost in your area, and apply it to your home's size, style, and quality of construction.Your best resource for this is a builder. For a flat fee, you may be able have a local contractor go through your home and provide an estimate. Try to find someone who builds individual, custom homes that don't benefit from the cost savings when you build 100 homes. If you want the same antique moldings, stone fireplace and plaster-and-lathe walls as you have now, make sure the builder takes that into account. Otherwise, the estimate may reflect less costly modern materials. If you can't afford to hire a builder, consider a local builder with a showroom or models. Get a price quote for a similar home in terms of size, number of bedrooms and bathrooms, similar materials, etc. Although having your home built will cost more than this quote, because you are only having one home built, their price will normally include the cost of a lot which you already own. Ultimately, the price quote from the builder should be sufficient.
Replace your contents
To determine the cost of replacing your home contents, you begin by making an inventory list of everything that you own. Just get out a piece of paper or use one of our prepared inventory lists:
If you prefer, you can download some free inventory software provided by the Insurance Information Institute.
Now start in one room and write down everything that you have. While certain items are simple, like a couch and sofa, you also need to note how many sets of dishes and what type they are, the make and model of all of your appliances, how many slacks, shirts, ties, suits, etc., that you own. The easiest way to do this is to start in one room and write down everything. Then repeat this step in your other rooms. If you really want to do it right, or if you have expensive items, it is recommended that you video tape or take pictures of all of your property.
Once you have completed your list or our inventory form, now you need to figure out what it would cost to replace each of these items. Next to each item on the list, write down your best estimate of the replacement cost. If you are not sure of the cost, use store catalogs, advertisements from the newspaper, similar recent purchases, etc. to best determine the cost. You might even visit a local store to get the price on a similar item. When you are done, add all of the figures together. This now becomes the amount of property protection that you should have.
The third part of homeowner's insurance that you need to consider is liability/medical protection. Personal liability protects you from a lawsuit should someone be injured while visiting your home. Medical payments pay claims arising from an injury at your home. and usually begin at about $5,000 per occurrence which should be sufficient for most people.
Personal liability is usually quoted as a single amount per occurrence. The amount represents the maximum that the insurance company will pay should you be sued. This amount will depend greatly on the amount of assets you have, your income, etc. If you are just starting out, you might consider $100,000. If you have a good job and a fair amount of assets, you should consider $300,000. If you need more coverage than this, you might consider an umbrella policy which could provide limits of $1,000,000 or more.
There are two primary items that will be identified in this part of your policy. First, you should have replacement cost (versus actual cost) coverage. It is fairly inexpensive and provides you with brand new items when they are stolen or damaged beyond repair. Second, you should have coverage for expensive items that you own that exceed the stated limits in your policy. For example, coverage for jewelry, watches and furs is usually limited to about $500, much less than what they are worth. You will want extra coverage to adequately protect these types of items.
Once you have determined the value of your home and its contents, and your liability/medical protection needs, then you are ready to evaluate your existing policy to identify and make any necessary changes.
Step 4 - Evalute Your Existing Policy