Choosing the right home insurance is not just about finding the lowest-cost premium, even though many people buy the cheapest policy they can find. While the cheapest policy might not cover what you actually need, the most expensive policy is likely to have features you don’t require. To make sure you get the right coverage, there are several things you will want to consider, beginning with the replacement cost of your home.
This is the amount it would cost to rebuild your home from square one, including labour and materials, after a covered disaster. That’s usually more than the market value of the home, especially in parts of the country where building materials and labour are expensive. If your dwelling coverage doesn’t cover the full replacement cost, then you’re on the hook for paying the difference out of pocket for repairs.
Personal property coverage should be enough to replace your belongings, and most policies set this at a percentage of your dwelling coverage, usually between 50 and 70 per cent – although you may have to bump this up if you have expensive items such as jewellery, artwork or electronics. Most policies also offer replacement cost coverage for personal property so that you’ll be reimbursed for the cost of a replacement instead of your item’s depreciated value.
Liability insurance is another important factor. You’ll probably get at least $100,000 in liability coverage under your standard policy, but that might not be enough if you have substantial net worth to protect. You can add more liability limits for just a small percentage increase in your premium, or buy an umbrella policy.
Deductibles are another part of your policy, and a higher deductible will lower your monthly premium, but cost you more out of pocket in the event of a loss. You should choose this amount based on your ability to cover a higher deductible in the event of an emergency.
Finally, consider whether you might need more than basic coverage. If you live in a flood zone, for instance, you might need flood insurance – this sort of coverage is not included in a standard policy. An earthquake policy is another optional endorsement for homeowners living in earthquake-prone areas. You might also need to purchase coverage for additional structures you have on your property, such as a garage or shed.
An established insurance broker can evaluate your home’s special needs and help you find the policy that provides the best combination of coverage and price.
