How Much Home Insurance Should You Get?

Homeowners seek to cover risks associated with damage to their property by buying homeowners insurance. However, not many homeowners have clarity regarding how much home insurance they should purchase. Most of them buy too much while some undervalue the risk proposition. There are no one-size-fits-all packages for the home insurance niche. The reason is simple—every home presents a totally different demographic. This includes parameters like overall safety associated with the neighborhood, geographic and climatic conditions, structural aspects, and household incomes. Here, we will help you understand the finer aspects of buying adequate and relevant home insurance.

Understand Your Home Insurance Premium

Most home insurance premiums are the collective sum of payments charged for the following type of coverage:

• Dwelling—this means paying for different types of damage to the main structure, the home, and some attached constructions like a garage.
• Loss of Utility—this part of premium partially covers your living costs when the home is rendered uninhabitable. For instance, widespread mold growth can leave your house dangerous to inhabit.
• Personal possessions—here, you pay for household items of value which can be stolen or damaged.
• Personal Liability—this payment ensures coverage in case you are held responsible for injury to someone on your property.
• Medical Expenditures—along with personal liability coverage, this takes care of medical bills of the person injured on your property.
• Other Important Structures—this payment is to cover damage to external, non-primary structures like fences.

Among these, dwelling coverage and personal possession coverage together form the biggest part of the premium. Dwelling coverage is the most basic, critical aspect of home insurance. Most households want a dwelling coverage sufficient to replace their entire home.

Personal Possessions: How much is good enough?

Coverage for personal possessions is often an argued part of home insurance. Though important, approximating the right value for various things in your home can be challenging. If you have lots of electronics items and valuable like paintings, expensive furniture, etc. ensure that the possessions coverage is close to the dwelling coverage. We suggest you keep the personal possessions coverage at about 50 percent of the dwelling coverage. This can go up to 60 percent in some cases.

Coverage that Compensates for Inflation: Ever thought about it?

Look at the last decade and it will become clear that nearly everything has become expensive. However, people forget that the same applies to the cost of construction. Supplies and professional labor is getting expensive with every passing year. So, what if you ever need to rebuild your home? Is your home insurance capable to cover for the rising cost of construction? Rather than thinking only about the current and near-future market value of your home, calculate the construction costs too. Your home insurance should be sufficiently spread to cover hikes in prices of property construction.

Standard Homeowners Policy Sounds Good? Think Again!!

Most standard home insurance policies don’t cover damage to property caused by floods! Though a natural cause, floods-related damages remain outside the realm of standard coverage. Check if your home insurance policy provides coverage against flood—don’t assume you have it. If not, ask for this coverage that is usually sold as an additional/add-on policy to the package. However, don’t be blinded by what insurance agents say about natural calamities. Do some basic research about flood-related susceptibility in and around your area. It is possible that you inhabit an area without any history or probability of floods.

Liability Coverage: Do you really need it?

Liability coverage is among the most commonly neglected aspects of home insurance. It seems people ignore the possibility of someone getting hurt on their property. This approach can have disastrous results. If sued, the financial damages can ruin you. It is better to pay a bit beyond your level of comfort to protect yourself. High net worth households are often recommended buying an umbrella policy. This comprehensive form of liability coverage covers most types of injuries sustained on any part of the property.

Expenses Involved in Buying a Home

If you feel that your rented home no longer meets your family's requirements, you will probably want to move into a little space of your own. But before you start looking for homes, you need to make an honest assessment of your existing financial situation. Have you got the financial capacity to afford a home?

Interest rates are at their historical lows now, so if you have got a stable income you will not have much difficulty making monthly mortgage payments. Let’s do the math.

These days, interest rates hover around 3 percent. At that rate, if you have a 30-year mortgage of $250,000, you will have to make a monthly mortgage payment of around $1000. You will probably be paying a rent of approximately the same amount each month. In this case, you can purchase a home without having to upset your monthly budget. Better still, your home is a great investment because its value will appreciate over time.

Remember that you will need to make a down payment. The lender will contribute up to 95% of the sales value of the home. You need to come up with at least 5%. You will need to consider some other expenses as well.

Energy

When you move into your own home, you will have to take care of your energy expenses. Make sure that you will have no difficulty setting aside a certain amount each month to pay your utility bills.

Notary

There is a legal fee associated with the acquisition of a property. The notary fees depend upon several factors and hence a little research is required to find out how much you will have to pay. In any case, expect to pay around $1,200.

School and municipal taxes

You will have to pay the municipal tax and school tax to the municipality every year. Some lenders set aside a certain percentage of your monthly mortgage payment to save the money required to pay these taxes on the due date. This arrangement will save you the trouble of having to come up with a bulk amount, but you should be prepared to pay a slightly higher EMI.

Renovations

Your home might require some renovations. If you are really handy, you could perhaps do these projects on your own and save some money. However, if the home requires major repairs, you will have to hire a contractor. Ask the contractor to give you a quote and plan your budget accordingly.

Mortgage insurance

If you contribute less than 20 percent of the value of the property, you will have to buy mortgage insurance. The mortgage insurance premium you pay varies between 0.5 percent and 2.90 percent of the principal amount.

Life insurance

Your lender may be ready to insure your mortgage, but that is not the best solution. Buying life insurance is a better idea because the premium payable depends on your age, health, and habits e.

Inspection

Before buying the property, you should consider getting it inspected by a professional. This is necessary to ensure that the home is in great shape. A home inspector may charge around $400.