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Since a Homeowners Insurance policy covers different types of property as well as a liability risk, each area should be looked at separately to determine the correct amount of coverage for each area.

An insurance professional can help you determine the amount of insurance you need. Even if you use a professional, the following information will be helpful to your discussions.

How To Determine The Right Amount Of Insurance On Your Home And Other Structures

Step 1. Determine the market value of your home and other structures on your property.

No matter how much or how little your house or apartment cost, the amount of the loss if your home is destroyed is the current market value. You want to at least start with this number.

Standard advice is to exclude the value of the land which presumably will not be destroyed.

One way to get an idea of market value is through websites such as offsite link and offsite link. Keep in mind that the results include the land. The numbers are only a guide and not to be relied upon - particularly if your house is at the high or low end of the market. However, the results will give you a general idea.

Step 2. If you would want to rebuild your home, determine the current cost. Be sure to include the cost of meeting current code requirements.

Homeowners policies are generally written on a replacement cost basis. This means that if your home is damaged, the insurance company will pay you enough money to replace the damaged or destroyed structure without deducting depreciation. An actual cash value (ACV) policy takes depreciation into account and will probably not provide enough money to replace your home.

To determine your home's replacement value, ask your insurance company to inspect your home and give you an evaluation. If it won't, your broker has a replacement-cost guide. If your home was custom-built, obtain an independent appraisal.

Determine the replacement value of your house every year by seeing what comparable houses (homes of similar square footage) in your area have recently cost to build.

The land on which your house is located should not be included in your valuation. The land will be there even after a loss.

Step 3. Consider the co-insurance requirement (the percentage of insurance you are required to carry to be paid for 100% of your loss.)

To receive full reimbursement of a claim (less the deductible), you need to carry insurance in an amount equal to at least 80% of the total value of your property. You could consider an even greater percentage to protect against a total loss. For example, if your home burned down completely, you might need more than 80% of its replacement value to rebuild.

Step 4. Purchase an amount of homeowners insurance that at least satisfies the co-insurance requirement and preferably gives you enough money to replace your residence.

Step 5. If you have other structures on the property, also evaluate the cost of replacing them.

Standard Homeowners policies automatically provide coverage to your garage and other unattached structures on your premises in an amount equal to 10% of the amount on your house. You can increase the amount on these other buildings if necessary. For example, if your house would cost $100,000 to rebuild and your garage alone would cost $20,000 to rebuild, since $20,000 is 20% of $100,000, 20% "other structures" coverage might be better for you.

Coping with inflation: In most states, you can purchase an Inflation Guard Endorsement -- an addition to your policy that increases your coverage periodically to match rising real estate values and construction costs.

Even if you have this endorsement, review the value of your property periodically to be sure you are appropriately insured. The numbers built into the policy may not reflect the reality of your house. If you have a question about whether your policy has kept pace with the replacement value of your home, ask your broker. If he or she tells you it has kept pace, get the opinion in writing. It will help you in any arguments with your insurance company.

You may also be able to purchase "extended replacement cost" coverage. This coverage provides a stated amount to rebuild your home plus a buffer -- anywhere from 20 to 80% above the amount of the policy. For example, if your house is insured for $200,000, the extended replacement cost provision could provide an additional $40,000 to $160,000 to cover the cost of replacement.uilding Codes: You can protect against the cost of meeting changes in building codes with a "code and contention" endorsement. The endorsement provides coverage for the cost of rebuilding according to the current code at the time of your loss -- which may be far more expensive than just rebuilding a house. For older homes, this could be particularly important.

Building Codes You can protect against the cost of meeting changes in building codes with a "code and contention" endorsement. The endorsement provides coverage for the cost of rebuilding according to the current code at the time of your loss-which may be far more expensive than just rebuilding a house. For older homes, this could be particualrily important.

If you live in an area that is prone to earthquakes, consider buying enough insurance to include covering your house's foundation. Foundations which are usually not subject to damage can be destroyed in an earthquake.

Loss of Use: Look at the amount of coverage provided by Homeowners policies for the costs you would incur if you can't live in your home.

Ideally it is preferable to have the highest level of protection because the time you are away from the home while it is being repaired could be lengthy -- particularly if the loss to your property is only one loss in a geographic area which suffers a lot of losses.

Insurance For Your Personal Property

Personal property covered under a Homeowners Insurance Policy includes:

  • Owned and borrowed property.
  • Your property located anywhere in the world.
  • Property you have at a second home is covered for only up to 10% of your home's coverage.

The amount of insurance that comes with a Homeowners policy depends on whether your own a house or an apartment.

Houses: If you own a house, your personal property is automatically covered up to 50% of the coverage on your house. If the value of your personal property is more than that, you can increase the percentage. However, you cannot reduce it below 40% of the coverage on your dwelling.

Apartment: If you rent an apartment or own a co-op or condo, your personal property is automatically covered for a minimum of $6,000. This can be increased by amending your Homeowner's Policy.

It is preferable that personal property coverage is written on a replacement cost basis, so that you can repair or replace damaged or stolen items.

To help determine the amount of personal property coverage you need, consider preparing a Household Inventory.

With respect to coverage on items such as jewelry, coins and stamps, keep in mind that Homeowners policies limit the amount of loss you can incur on items like this. If your household inventory shows that you own items listed in the following chart with a value in excess of the limits, consider buying an endorsement (an amendment to the policy) to increase the limit. You could also consider a Personal Articles Floater policy to insure separate items fully, without a deductible, wherever the items happen to be.

Dollar Limits on Specified Types of Personal Property & Costs to Increase Limit By Endorsement

Class of Property

Dollar Limit

Estimated Cost to Increase Limits

Money, bank notes, bullion, coins (including collections) and medals.

$ 200

$6 per $100

Securities, manuscripts, personal records, stamp collections, and valuable papers.


$5 per $100

Watercraft, including their trailers, equipment and motors


Not permitted

Other trailers


Not permitted

Grave Markers


Not permitted

Jewelry, watches, furs, and precious and semiprecious stones by theft.


$10 per $1000

Loss of firearms by theft


$3 per $100

Loss of silverware, silver-plated ware, gold ware, gold-plated ware, and pewter ware by theft.


$16 per $5000

Property on the residence premises used for business purposes.


$25 per $2500

Property away from the residence premises used for business purposes.

$ 250

To $275 with insurance listed above.

Electronic apparatus that may be powered by electrical system of a motor vehicle but which retains its capability of being operated by other sources, while in or on a motor vehicle.



Electronic apparatus that may be powered by electrical system of a motor vehicle but which retains its capability of being operated by other sources if used at any time or in any manner for business purposes, while away from the premises.



SOURCE: Family Money (Insurance Information Institute, Missouri Association of Insurance Agents)

If you don't wear your valuable jewelry or look at your valuable collections often, consider putting them in your safe deposit box at your bank and asking your insurance company or broker for "valuable article coverage for in-vault jewelry." Losses from a vault are possible, and banks are generally not liable unless found negligent. Vault coverage can be only $3 per $1,000 versus the $10 per $1,000 covered by many policies

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Personal Liability Coverage

Homeowner's policies typically include personal liability coverage for a pre-set amount

If your net worth is greater than the amount of liability, increase the liability limits to at least equal your net worth. Depending on the amount of your assets, consider purchasing additional liability coverage or an umbrella liability policy.

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