No Dumb Questions
If you've ever looked at your insurance bill and wondered why it was so high, you're in good company. Sara and Julia are regular people who read and write about insurance every day at Insurify. They've had to learn everything there is to know about insurance from the ground up, so they're here to help (and save you a couple of years).
Insurance is confusing, and it can be daunting to learn how to save. So, if you've ever wondered how to compare quotes, how to get the cheapest insurance, or what full coverage even means, look no further.
Join us every week for honest and open discussions about your insurance questions, plus learn how to save on your premiums. Because really, no one has time to waste money on bad insurance.
No Dumb Questions
How much home insurance do I need? | S2 Episode 3 | No Dumb Questions
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Buying the right amount of home insurance is a balancing act. Join Julia and Sara as they go over:
- How much home insurance you actually need
- What all the different coverages mean
- What you should consider while shopping
- Additional coverages you may need
Enjoy!
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Disclaimer: This podcast is produced by Insurify and is intended for educational purposes only. We are not licensed insurance agents, and we do not constitute personalized financial or legal advice. Personal situations vary, and you should always consult a licensed professional before making financial decisions.
Welcome back to No Dumb Questions, the podcast where we give you straight talk on coverage, claims, and savings. And my name is Sarah. And I'm Julia.
SPEAKER_02And today's topic is how much home insurance do you actually need? Because just get insurance, not super helpful advice.
SPEAKER_01No, not really. So, like we mentioned in our last episode, we're gonna do a bigger deep dive into how much base coverage you need and what other components that includes. Yes.
SPEAKER_02And we'll show you some ways to save, of course. Of course.
SPEAKER_01All right, let's get into it.
SPEAKER_02How much home insurance do I need? The quick answer is you need enough coverage to fully protect your home, which includes dwelling coverage, your stuff, your personal property, and your liability if someone sues you and additional living expenses if your home becomes unlivable.
SPEAKER_01Exactly. And to focus on enough to rebuild the structure of your home, not just match its market value.
SPEAKER_02Yes, that is your baseline. And if you live in a flood zone, you'll need flood insurance, which is separate from home insurance. If you're in an area at risk for earthquakes, you'll need earthquake insurance. If you live in a hurricane prone area, you might need flood and wind insurance or extra coverage there. Or if you live in an extremely wildfire prone area, you might need extra wildfire coverage.
SPEAKER_01Exactly. And you may want to consider endorsements if you have high-value possessions, jewelry, artwork, etc. And this also can be somewhere you want to consider an umbrella policy, which can just like increase your limits. Yes, exactly. Like an umbrella.
SPEAKER_02Like an umbrella. Um, but it's all up to your situation. And it's really important to understand so that if a covered peril damages your home, you know what to do. Yeah. Just a little bit more peace of mind, you know what's going on. So let's dive deeper into it. Let's do it. Awesome. Okay, let's get into it. Let's do it. So starting with the biggest piece, your dwelling coverage or coverage A. So that covers the structure of your home. That's your walls, roof, floors, built-ins, any attached structures like an attached garage. We did cover this more in depth in episode two, so feel free to refer to that if you have any more questions. But a big mistake that people often make is that they ensure based on the market value of their home, which includes the land the home is built on, not just the rebuild costs, which is what you really want to factor into for dwelling coverage.
SPEAKER_01Exactly. So, how much dwelling coverage do you actually need? The ultimate question, right? Ideally, enough to fully rebuild your home from scratch. Um, you need enough coverage to cover the cost of labor, the materials, your local construction costs, um, and what your mortgage lender requires you to have. A good rule of thumb is the 80-20 rule that we went over last episode. So you can refer to that if you want more info.
SPEAKER_02Yes. So this is where a home insurance calculator can come in super handy. So this will estimate factors like square footage, the construction type of your home, um the location of your home, labor costs in the area that you live in, and it can help you get an estimate for local costs from local building associations.
SPEAKER_01Exactly. The quick formula is like square footage times cost per square foot. Yes. Um, but you want to adjust for like any custom features you may have in your home, any upgrades you've made, and of course inflation.
SPEAKER_02Yes, super important. Moving on, we've got other structures coverage or coverage B. So this covers sheds, detached garages, swimming pools, gazebos, basically physical structures on your property that are not attached to your home. And this also does not include the contents inside your home. And the limit for this coverage is usually about 10% of your dwelling coverage, which means that if your dwelling coverage is $300,000, then you'll qualify for $30,000 of other structures coverage. Exactly. Yeah.
SPEAKER_01So up next is your personal property coverage. That's coverage C. So that covers your furniture, electronics, clothing, jewelry, art, sports equipment, anything that's inside your home.
SPEAKER_02Yes, exactly. That's usually 50 to 70% of your dwelling coverage. Um, however, kind of those last few things you mentioned, jewelry art, even some specialized sports equipment. Um, if you have super valuable items, um, you might want to consider a separate endorsement, which is kind of like a mini policy for those items, or just purchasing higher coverage limits so that you can make sure you have enough coverage for those higher value things.
SPEAKER_01Yeah. In general, it's worth creating a home inventory to see how much coverage you need. And if you have to submit a claim, you have all those exact amounts. So when you're buying new possessions, keep those receipts, put them away, put them with your home inventory. So if you submit a claim, you have the value of that item.
SPEAKER_02Yes, that is super helpful. Um, even as a renter, whatever it is to catalog your belongings. So the next coverage we'll cover is called additional living expenses or loss of use coverage, which is also coverage E.
SPEAKER_01Exactly. So this kicks in if your home is uninhabitable due to a covered peril and you have to move to like a hotel or a short-term rental, that's when ALE will kick in. So it covers your living expenses like your food, your hotel, and your gas up to coverage limits until your home is habitable again. Um, your mortgage lender will set the minimum limit, but think about how much it would cost to feed your whole family comfortably for an extended period of time.
SPEAKER_02Yeah, exactly. Okay, so moving on to a little bit of a different kind of coverage is personal liability insurance, which is in section two of your policy. So this will cover injuries that happen on your property to other people and any property damage that you cause. Um, if you get injured on someone else's property and it kicks in if someone sues you. Yes.
SPEAKER_01This can be like icy walkway, someone falls. Exactly. It's it can be really small things that you don't even think about. So it's an important coverage to have. So those are the basics, but additional coverages you might want to consider include flood insurance. This can be required by mortgage lenders in high-risk areas, um, earthquake insurance. Um, these two are never included in your standard home insurance policy. So if you live in a high-risk area, definitely look into those. Um, you may have additional wind or wildfire insurance if you live in high-risk areas, or it could be an additional deductible. Just make sure you check. Yep. Um, and then, like we mentioned, umbrella insurance, which kind of increases your limit and adds a cover onto your standard policy.
SPEAKER_02Yes, that can be super helpful.
SPEAKER_01Yes.
SPEAKER_02Um, all right, let's get to some frequently asked questions. Let's do it. Awesome. Okay, so let's chat a little bit about liability insurance. How much liability homeowners insurance do I need?
SPEAKER_01So it starts at a minimum of 100K. Okay. But experts recommend at least 300K. Think about like the whole value of all your assets if you want to have protection for them. Exactly. Cool.
SPEAKER_02So, how do I get homeowners insurance after a lapse in coverage? This is a little bit complicated. Okay. Walk me through it.
SPEAKER_01Yeah. If you have a coverage lapse, your mortgage lender will force you to buy a policy. Um, it's usually pretty expensive and it's to maintain coverage and it protects their portion of the value of the home. So this is called a forced place insurance policy. Okay. So first you want to call your insurer to see why it lapsed and if you can reinstate the policy. Occasionally it's just because maybe you missed a payment or there was a clerical error. But otherwise, you're gonna want to as soon as possible compare quotes for a new policy. Your rates will go up because of that lapse. So you want to try and leverage discounts and hire deductibles if they're affordable to you and work with your mortgage company to let them know when you have coverage. Yes, awesome.
SPEAKER_02Okay. That's really good to know. Yeah. Yeah. All right. Um, so what is loss of use coverage on a homeowner's insurance policy?
SPEAKER_01So that's those additional living expenses that we went over, right? If a covered apparel makes your home uninhabitable, you move into a hotel or short-term rental, it covers like food, gas, all that good stuff to make sure your family's comfortable.
SPEAKER_02Gotcha. Awesome. Okay. Um, how do I calculate my home insurance needs?
SPEAKER_01So you're gonna want to start with the rebuild cost for your dwelling coverage, um, and then add personal property estimates to cover the value of your items, and then choose enough liability coverage to cover all of your assets. Okay. And what affects your home insurance costs the most? The biggest one is definitely location. Um, and then of course, rebuild costs, which factor into location, the coverage limits that you need if you have a higher value home, higher rebuild value of your home, I should say. You want to have higher coverage limits. And then, of course, your deductible. Higher deductible means lower cost, but then you have to pay more out of pocket.
SPEAKER_02Yes. Awesome. Okay, thank you for walking me through all of that. I feel like we should put together a little like listener action plan because this has been a lot. It's been a lot. Yeah.
SPEAKER_01Okay. So to figure out how much home insurance you need, first off, you're gonna want to estimate your home's rebuild costs. So this is gonna be multiplying your home square footage by local rebuilding costs, need at least 80% of coverage or what your mortgage letter requires you to have. Awesome.
SPEAKER_02Next would be to make a home inventory. So record the value of your items so you know how much personal property coverage that you need and keep receipts, especially for bigger things if you can.
SPEAKER_01Exactly. Um, and then you wanna estimate your living expenses to get an idea for how much additional living expenses coverage you might want. Awesome.
SPEAKER_02And then check your liability, um, understand the risks on your property and understand the value of your assets so that you can get appropriate coverage.
SPEAKER_01Exactly. Okay, next you want to review your current coverage limits. Is it enough? Do you need additional coverages? Do you need a flood? Do you need earthquake? Has inflation caused the rebuild costs to go up? Do you need more coverage?
SPEAKER_02Yes, absolutely. And then finally, compare quotes. You know, you want to look for discounts that you qualify for. Um, could you be bundling your home and auto policies if you've got a car? Um, could you install security systems to improve the safety of your home? Um, do you have any like green or you know environmental home improvements that you've added or resiliency upgrades that protect your home from disasters? Yeah. You can also address your deductible options, increase or decrease depending on your budget. And of course, just your coverages. You know what I mean? Always make sure you're comparing apples to apples. We always want to make sure when we're comparing policies, we're comparing like to like. But that will really help you get an affordable policy. Exactly. Everyone's different. Yeah. So compare multiple policies.
SPEAKER_01For sure. Yeah. Overall, home insurance is a really important financial safeguard, not required by law, but likely required by a mortgage lender.
SPEAKER_02Yeah. It's your home structure, it's your stuff, and it's your financial protection.
SPEAKER_01Exactly. So knowing what it covers and how it works can help save you in the long run if you have to submit a claim.
SPEAKER_02Thanks so much for tuning in to No Dumb Questions. If you want to compare quotes, you can do so with the link below. And until next time, stay prepared and protect your wallet.
SPEAKER_00You're listening to No Dumb Questions, an Insurify podcast. This content does not constitute personalized financial or legal advice. This podcast is written, produced, recorded, and developed by Sarah Getman, Julia Taliessin, Riley Hines, Sydney Harrell, and edited by Angelica Coleman. Compare insurance quotes by clicking the link below.