Homeowner’s Insurance: How Much Coverage Do You Need?

insurance-agentWhen you buy a new home, you are required by the lender to have homeowner’s insurance (aka “hazard insurance”). The question is, how much coverage do you need?

Daryl Alexander, an agent in Fort Collins with State Farm, recommends that you “make sure your home is insured for at least 100% of its estimated REPLACEMENT cost. “

What does Daryl mean by “replacement” cost?

The Difference Between MARKET VALUE and REPLACEMENT COST
Market value is the amount a buyer would pay for a home. Replacement cost is the rebuilding cost necessary to repair or replace the entire home.

Over the years, the cost of materials and labor increase, sometimes faster than the market value of a property. If you have a fire, water leak or hail claim, and you’ve owned your house for many years, the cost to repair your house could be really high.

Cost of Premium
It sounds like replacement cost is the way to go, right? Then why would anyone get market value insurance?

The premium for market value insurance is lower than replacement insurance, which is why many homeowners buy it.

That’s being penny-wise and pound-foolish, as the expression goes. For the minimal increase in cost, replacement insurance gives you the coverage you’ll need in case of a disaster. Remember, you are buying peace-of-mind that your family and possessions are protected.

Review Your Policy Occasionally
As the years go by, it’s a good idea to get together with your insurance agent to ensure you still have the right coverage for your home. This is particularly true if you have remodeled bathrooms and kitchens, finished basements, or added on rooms or living spaces.

The worst time to find out you DON’T have enough insurance is when a disaster occurs. Avoid the heartache and trauma of insufficient coverage; find a trustworthy, reputable insurance agent, listen to his/her advice, and buy the coverage he/she recommends.

If you would like a referral to some trustworthy insurance agents, please contact Gary Clark.

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