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How much homeowners insurance do I need?

You need enough insurance to cover the following:

  1. The structure of your home.

  2. Your personal possessions.

  3. The cost of additional living expenses if your home is damaged and you have to live elsewhere during repairs.

  4. Your liability to others.

The structure

You need enough insurance to cover the cost of rebuilding your home at current construction costs. Don't include the cost of the land. And don't base your rebuilding costs on the price you paid for your home. The cost of rebuilding could be more or less than the price you paid or could sell it for today.

Some banks require you to buy homeowners insurance to cover the amount of your mortgage. If the limit of your insurance policy is based on your mortgage, make sure it's enough to cover the cost of rebuilding. (If your mortgage is paid off, don't cancel your homeowners policy. Homeowners insurance protects your investment in your home.)

For a quick estimate of the amount of insurance you need, multiply the total square footage of your home by local building costs per square foot. To find out construction costs in your community, call your local real estate agent, builders association or insurance agent.

Factors that will determine the cost of rebuilding your home:

  • Local construction costs

  • The square footage of the structure

  • The type of exterior wall construction–frame, masonry (brick or stone) or veneer

  • The style of the house (ranch, colonial)

  • The number of bathrooms and other rooms

  • The type of roof and materials used

  • Other structures on the premises such as garages, sheds

  • Fireplaces, exterior trim and other special features like arched windows

  • Whether the house, or parts of it like the kitchen, was custom built

  • Improvement to your home–adding a second bathroom, enlarging the kitchen or other additions that have added value to your home

Standard homeowners policies provide coverage for disasters such as damage due to fire, lightning, hail, explosions and theft. They do not cover floods, earthquakes or damage caused by lack of routine maintenance.

Flood insurance is available from the National Flood Insurance Program