Homeowners Insurance: How Much Do You Need?

Because extremely valuable items may not be covered up to the full amount of their value in a standard policy, you may need to add a separate silver and jewelry floater.

Statistics show that about 70 percent of the population carries enough homeowners insurance, and about 30 percent of the population carries too little. Market values of houses have increased dramatically in recent years, as have the costs of construction. If you don't have enough homeowners insurance, you may not be able to replace your home if it's destroyed.

Types of Insurance

There are four basic types of homeowners insurance: HO1, H02, H03 and H04. The H01 is a stripped down policy covering fire, lightning, windstorms, hail, explosion, riot, civil commotion, breakage of glass or safety glazing materials, smoke, vandalism and malicious mischief. As you move up to Homeowners 2, you get coverage from falling objects, such as a tree falling on your house. Homeowners 3 adds such things as the weight of ice, snow or sleet on your roof, as well as the collapse of a building. H03 also covers frozen pipes that burst and cause water damage. If you have Homeowners 4, all perils coverage, it covers everything except moving land and water, war, nuclear hazards and the like. If you are in an area which is subject to high water, you should buy a special flood insurance policy from the federal government.

An all perils, or all risk, coverage usually costs about 40 percent more than the stripped down contract, but it gives you far greater protection. These policies also offer protection if something of yours is stolen while you are traveling . Under most homeowners policies, college students away from home and their belongings are protected.

Some policies let you cover the replacement cost of the building and its contents. Under terms of the replacement policy, if you insure for value, the home or its contents will be replaced as close to the original as possible.

The value of full coverage…

For full coverage of partial damage, you must insure for at least 80 percent of the value of the home. You won't receive dollar for dollar coverage for even a partial loss unless you are insured for at least 80 percent of the value. Many people think that if they buy $50,000 worth of insurance and have a $25,000 loss on a $75,000 house that they will receive the full $25,000. This isn't true. You have about 75 percent covered, and you will get only 75 percent of the damage minus a certain amount for depreciation of contents.

Replacement cost coverage on the house alone doesn't cover replacement cost for the contents. You can buy replacement cost insurance for the contents under a separate policy. Under standard policies, the replacement of an article is based on its useful life. This means that after a few years, the replacement value may be zero. Most contents insurance is equal to 40 percent to 50 percent of the building's insurance value. So, if you have $100,000 worth of insurance on your home, you have about $50,000 worth of coverage on its contents.

It's generally recommended that at least $100,000 worth of liability be carried. There's a small extra charge. And, for just a little bit more, you can get $300,000.

Renters insurance covers only the contents, not the building. Condominium owners insurance covers everything inside the four walls of the apartment. The structure itself is usually covered under a master insurance contract bought by the condominium association.

Evaluate your homeowners insurance every three years and, if possible, add an inflation endorsement rider to your standard policy.

For more information and suggestions about homeowners insurance, contact your local county Extension office.