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How Much Home Insurance Coverage is Enough?

The question of, “How much insurance is enough insurance?” has no single right answer. It depends on your individual circumstances. But there are a number of guidelines you can use to help you find that magically right number for you when you get your home insurance quotes.

The Numbers from Your Lender’s Point of View

If you have a mortgage, the lender will usually give you a minimum figure for dwelling coverage. In most cases this will be the purchase price you paid or the current appraised value. However, these are not the figures you need to rely on. Remember the lender is only interested in protecting the loan amount in the event that your home is unsalvageable.

Considering Your Own Needs

The most important insurance amount to consider is the one that makes you whole after your home is completely destroyed and that means you need to consider the cost of rebuilding. Looking around the country right now, you see falling house prices. This is due in part to the end of a housing bubble and in part to the current credit crunch. But while the cost of homes are falling the cost of building materials and labor are increasing. So you have to keep the amount of your homeowners insurance quotes up to date with rebuilding costs while still ensuring that you at least have enough to pay off the amount outstanding on the loans you have secured on the property.

There are two kinds of home insurance quotes you can get for this purpose. The first is a quote for replacement cost. This is a limited figure that represents the actual rebuilding costs. The second quote you can get is for extended replacement cost. The premiums for this are slightly higher but it gives you a buffer to provide against the costs going up during the year. If the country experiences inflation, the number you fix at the beginning of the year may be out-of-date by the end of the year. The buffer usually allows up to 20% more than estimated building costs.

The most challenging aspect of this process is determining the general amount of rebuilding costs for the purpose of getting your online home insurance quotes. If you underestimated the cost of rebuilding, you may not be allowed to start the rebuilding work unless you can guarantee the shortfall out of your own savings. That means you may have a forced sale of the land with the insurance paying off the mortgage and nowhere to live. So be sure to do your homework before getting those home insurance quotes.

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