WEDNESDAY, JANUARY 20, 2021
While most homeowners know that they need home insurance, many aren’t sure how to calculate the right amount of coverage for their home. Every home is different, after all, and home insurance policies aren’t one size fits all. Purchasing a policy without knowing how much coverage you actually need can leave gaps in your insurance—and mean paying more for insurance you don’t need.
Evaluating Your Home’s Total Replacement Cost Value
When trying to figure out how much home insurance you need, you may hear the term “total replacement cost value.” This is not the same as the market value of your home. Instead, the total replacement cost value of a home refers to how much it would cost to completely rebuild your home after a disaster, including material and building costs.
This is generally calculated based on the value of your home per square foot, including the value of permanent fixtures and amenities. The higher your home’s total replacement cost value, the more home insurance you may need.
You should have your home’s replacement value calculated by an expert before searching for a home insurance policy so that you can make sure to get the coverage you need.
What is the 80% Home Insurance Rule?
Your home’s total replacement cost value also has to do with the 80% rule in home insurance. The 80% home insurance rule dictates that you must carry at least 80% of your home’s total replacement cost value in home insurance. Carrying less than 80% runs the risk of leaving gaps in your coverage, as compensation will be calculated based on how much insurance you should have been carrying. This means that even if the damages to your home cost less than your insurance policy, you may not still be covered for all of the expenses if you have less than 80% of your home’s total replacement cost value in home insurance.
For the highest amount of protection, it is generally recommended that you carry 100% of your home’s total replacement cost value in home insurance.
If you are not sure how much insurance you need, be sure to speak with an insurance agent. Also keep in mind that your home insurance needs may change over time. If you make any upgrades or changes to the home, this may change its total replacement cost value.
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