Why do we need homeowners insurance and how much homeowners insurance do I need?

Homeowners insurance is not just a thing that's "nice to have". We firmly believe that it's a necessity!

Some reasons why you need insurance are:

• It will help you pay to rebuild or repair your house if it is damaged by a covered cause, such as a fire or an act of vandalism.
• It will help you pay for settlements involving accidents in your home where you are held liable (such as when a visitor gets injured while in your house and that visitor sues for damages and medical expenses).
• It gives you peace of mind from the "what ifs" related to your house - what if my house burns down? What if a hailstorm hits? What if a thief breaks in?
• If you're buying your house through a mortgage, mortgage companies will require you to get homeowners insurance as a condition of the loan.

Not getting homeowners insurance would be a serious mistake. Another mistake would be to have inadequate homeowners insurance.

How much homeowners insurance should you get?

The first step you have to make to determine this is to get an estimate of how much you will need if you will rebuild your home.

As a rule, you need to get insurance that will provide you what you will need to rebuild your home. Some of the questions you need to consider to determine this are:

• How much insurance can you afford?
• How much deductible can you pay? How much savings and credit do you have access to in case you do need to rebuild your house?
• How much will you need to replace other items in the home, such as centralized air-conditioning or heating?
• How do you want the insurance company to pay? You can choose between cash value and replacement cost.
  • For cash value, the insurance will only pay you for the actual cost of the item or house currently, less depreciation.
  • For replacement cost, the insurance will pay you to rebuild your house at the cost it is now, using the same materials or materials similar to what you used?
• What possessions do I have? Will the coverage be enough or do I need more to protect items of high value, such as jewelry and furs? These are commonly not covered by the standard homeowners insurance policy. Make an inventory of what you have and put a price tag on each item's current value. You will need additional insurance if you have expensive pieces of art, antiques, jewelry or if you have an office or operate a business at home.

If you are concerned about inflation, you can add an inflation protection rider.

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