Choosing your coverage limits and deductibles

When it comes to dwelling coverage limits for your house, you want to cover the rebuilding cost of your home. Don’t confuse this with the purchase price or real estate market value. The rebuilding amount is based on local construction costs. If you insure the home for real estate market value, you risk not having enough funds for repairs, and could have to pay the difference on your own. Or you might end up over-insured.

To get an estimate of your rebuilding cost, multiply the square footage of your home by local construction costs per square foot. Your home insurance agent or insurer should be able to help with calculating the replacement cost.

For personal property, you generally want coverage limits that are at least 50% of your dwelling coverage amount, and your insurer may automatically set your limit that way. However, you can lower this limit if needed or purchase extra coverage if you think the limit isn’t enough to cover your belongings.

The best way to pinpoint how much it would take to replace all your stuff is by taking a thorough home inventory. An inventory record can also come in handy later if you have to make a claim and need to know exactly what you lost.

While home inventories can be a lot of work, using an inventory app like this one from the Insurance Information Institute can speed things up.

Replacement cost vs. actual cash value

When deciding how much homeowners insurance to buy, you’ll need to choose between replacement cost or actual cash value.

Replacement cost coverage — the more expensive option — does not factor in depreciation when reimbursing you for stolen or damaged personal items. It pays to replace your belongings with new, similar items, up to your coverage limit. If your policy insures your home for 100% of its value

Actual cash value, on the other hand, bases claims payments on the depreciated value of your belongings. In other words, you get back the amount your valuables were worth at the time of the loss. Actual cash value is cheaper but offers less coverage.

Understanding deductibles

Homeowners insurance includes a deductible for property damage, which is the amount that’s deducted from claims payments. Instead of selecting a deductible for every type of claim, you can choose an all-peril deductible that applies to several incidents, whether it’s a stolen laptop or a burst pipe.

Each time you receive a claims check, your insurer subtracts your deductible amount. For instance, if you have a $1,000 deductible and file a claim for roof repairs to the tune of $10,000, your insurer would issue a payment of $9,000 and you would be responsible for the remaining $1,000.

Depending on the insurer, you may have a separate deductible for claims involving wind and hail. Liability claims generally don’t have a deductible.

How high should you set your deductible?

The typical home insurance deductible is between $500 and $1,000. Choosing a higher amount will usually reduce your premium. However, you’d have to shoulder more of the financial burden if an incident occurs. Going lower with your deductible, on the other hand, means you might have a higher premium but your insurer would pick up nearly the whole tab after an incident.

Next -The cost of homeowners insurance

Posted 2:00 PM

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