Choosing the right amount of homeowners insurance means making sure each part of the policy is large enough to actually protect you. Here is how to think about it.
Dwelling coverage — the most important number: your dwelling coverage should equal the cost to rebuild your home, not its market price. Rebuild cost is based on construction — materials and labor — and does not include the value of your land. Market value and rebuild cost can be quite different, so do not simply use the price you paid.
Personal property coverage: this is often set as a percentage of your dwelling coverage. Take a rough inventory of what you own — many people underestimate. Consider replacement cost coverage so belongings are reimbursed at today's prices. High-value items like jewelry may need a separate endorsement.
Liability coverage: this protects your finances if someone is injured at your home. Choose a limit that reflects what you would need to protect — many homeowners choose higher liability limits for the added security.
Loss of use: make sure it is enough to cover real living expenses if you had to live elsewhere during repairs.
A few tips: review your coverage every year, after renovations, and after major purchases; ask about extended or guaranteed replacement cost, which adds a cushion if rebuilding costs rise. To review options, get an insurance quote from RMO.