How Much Homeowners Insurance Do You REALLY Need?

by Dennis Volz

Your home is likely your single largest investment. Protecting it properly is critical to your financial security. If you’ve only been guessing until now, then guess no longer.

Insurance for your home need not be a shot in the dark. There are simple ways to determine EXACTLY how much insurance you should have.

Even though insurance has been part of our culture for over 100 years, to most people – It’s still a just a mystery. And because they don’t understand it, a lot of people think they’re being “ripped off” by the Insurance Industry; aka “The Club” I want to end that for you. I’m an industry “insider”: A licensed member of “The Club” I’ve been inside the insurance business for over 30 years and I know it like the back of my hand: From policy to claims and back again. I’ve sold insurance. I’ve studied it. I’ve discovered what makes “good insurance” — and what makes “bad insurance”.

I know that not all insurance is “created equal”.

If you’re not properly insuring your home you could be either wasting needless premium money on excess coverage or you could be setting yourself up for a severely UNDERINSURED loss that could cost you tens of THOUSANDS of dollars or even MORE! I’ve been around the insurance business for a long time and I’ve seen it all.

  • I’ve seen people standing next to smoldering ashes that just hours before was their home and everything they own.
  • I’ve comforted those who have just received a 50-page lawsuit because their sprinkler flooded their neighbor’s yard or their dog bit a friend’s child.
  • I’ve reassured clients that they have coverage after their toilet flooded their house over an entire 3-day weekend.
  • I’ve seen clean-up bills for just water damage in excess of $100,000.

And I’ve been able to pay all these losses for these very frightened people because we made sure that their insurance was right for them – That it would be there to “write the check” should these shattering losses happen to them! Homeowners insurance, when purchased properly, can give you the security of continuing life as you know it in the event of a catastrophic casualty or liability loss.

Homeowners insurance is POWERFUL and very comprehensive in the scope of coverage it offers.

Here’s a little overview….

  • It protects your home
  • It protects your stuff at home
  • It protects your stuff on vacation
  • It protects your stuff in the USA
  • It protects stuff you may have in a storage facility
  • It protects your stuff all over the world !
  • Yes, that’s right… you lose your stuff ANYWHERE on the planet…you’re covered just as you are in your own backyard.
  • It protects your CHECKS & CREDIT CARDS if they’re stolen
  • It gives you Liability protection….that’s when you get sued
  • It gives you protection for stuff you’d never imagine.
  • Here’s just a few examples
    • Money, Bank Notes, Coins (including collections) up to $200
    • Property used or intended to be used in business
      • On premises up to $1,000
      • Off premises up to $250
    • Watercraft and equipment up to $1,000
    • Securities, Checks, Traveler’s Checks up to $1,000
    • Trailers (not used with watercraft) up to $1,000· Stamps, trading cards, comic books (including collections) up to $2,500
  • Theft loss of:
    • Jewelry and Furs up to $1,000
    • Firearms up to $2,500
    • Silverware and Goldware up to $2,500
    • Rugs, tapestry, wall hangings
      • Per Item up to $5,000
      • Aggregate up to $10,000
  • Home Computers up to $5,000

WOW, you say! That’s quite a list. Yes it is…and there’s MORE… Yes, there’s a LOT more… But before we get to that … the WHAT and HOW TO BUY Homeowners Insurance, let’s talk about the WHY!! Why would anyone need or want Homeowners Insurance? Well, in most cases you’re required to have it by your lender. Now you could get just about ay old insurance company to insure your home to satisfy your lender. But… Here’s a question for you… WHY would you want to trust your biggest investment to just any old insurance company ? And hopefully your answers is… “I don’t,”

You’re sitting outside on a cool October night. You have a warm, wool blanket wrapped around you and around you is the sound of people working, cleaning, the hum of a diesel engine. The blanket was given to you by a firefighter, the people working are firefighters , and the hum of the diesel engine is the fire truck that’s just dumped 30,000 gallons of water on your, now black and flattened residence. You’re just a little freaked out but you’re ok. So is everyone else who was in the house with you. All that is ok, but EVERYTHING YOU OWN is toasted to a crispy black residue that’s still smoldering from the heat of the fire. It’s all gone: your home, your garage, your favorite chair, your entire wardrobe, big-screen television AND THE REMOTE (now I’m starting to sweat), stereo system, all the dishes in your kitchen, furniture, bed linins, towels, silverware, blender, your Xbox, your digital camera and last, but not least…. your treasured iPod

You see, here’s the problem with all those ASSETS…. You probably saved over a long periof of time to purchase your house. You bought your stuff just a little at a time. You know, a CD here, a blender there, a couple of jackets somewhere else. Then, before you know it, it’s all there cluttering up your drawers, your closet and every other space in your place. Would you buy scuba or skydiving equipment from “Jimmy’s Discount Dangerous Sport Second-Hand Equipment Store?” Of course you wouldn’t. You wouldn’t trust your life to used, junk equipment. You also wouldn’t buy it without thoroughly understanding how it works and making sure it would work to your specifications and your individual needs. Properly structured Homeowners Insurance provides protection for your house, your personal property, AND Protection in case of a liability lawsuit. “WHAT?!?!” you say. “Lawsuit ! !” Yep, lawsuit. Could it happen to you? The answer is… Of course it could ! ! But we’ll talk about that in a minute.

So…. Let’s talk about the nitty-gritty of Homeowners Insurance. There’s certainly not room here in this report to cover all of it, but I promise, that when you’re done you’ll know more about homeowners insurance than 95% of the planet. Having a good handle on your insurance decisions is the only way to best prevent problems and surprises at claim time.

There’s three main parts to your homeowners coverage:

1. Coverage for the house
2. Coverage for your stuff

3. Liability coverage

Let’s take these on one at a time.

COVERAGE FOR YOUR HOUSE (the structure)

This is probably the least understood of the three. And the biggest question is HOW MUCH? How much coverage to I REALLY NEED to properly and reasonably cover my home? It’s really a simple answer. This is probably worth the entire time you’d spend reading 10 of these POSTS.

You need just enough coverage to rebuild your house.

Here’s what you DON’T NEED! You DON’T NEED to insure it for its market value (what you could sell it for). You also DON’T NEED to insure it up to the LOAN AMOUNT. Both of these numbers have NOTHING TO DO with the cost to rebuild your house. If you determine that you need $200,000 to rebuild your house and your lender tells you that you have to insure it for $300,000 because that’s the amount of your loan. You tell them that you know different! If you can’t get this through their thick heads, call me. I’ll take care of it for you. There’s a law I can cite to them that will cool their jets in a hurry. (And I’ve done it many times in my 3 decades of helping my policyholders) The cost of lumber can fluctuate wildly depending on the season. So how much do I need to rebuild my house? That’s the magic question, for sure! The answer is that you calculate it by using cost per square foot. You’ll need to know how many square feet of living space you have. Generally, an appropriately sized garage is included in the cost per square foot. For example, if you live in a 800-1000 square foot house, you’ll likely have a 1 car garage. If you live in a 4000 square foot house, you’ll usually have a 3 or maybe even a 4 car garage. Ideally you’d like to get a licensed contractor to your house to estimate that for you. Get one who is currently building houses in your area. Believe me, he knows the cost. Remember though, EVERY HOUSE IS DIFFERENT! I have several contractors insured and I keep up with them on the current cost of construction in my area. I hesitate to just give you a number here as it changes all the time and you need to tweak it a little based on the configuration of your house. For example, if your house is a track house, (one that was built among a bunch of others that are about the same) your cost of construction will probably be less than if you lived in a custom house. You have to ask questions like these:

  • Do I have carpet or marble tile?
  • Do I have a central vacuum system?
  • Do I have a composition shingle roof or concrete tile?
  • Is my kitchen standard or custom?
  • Do I have central air conditioning, ceiling fans, custom wood stair rails, or granite counter tops in the kitchen?

With just a quick phone call to my office, we’ll be happy to help you determine your cost per square foot. Another common point of confusion is that people think they need to insure their house for it’s market value. NOT SO! Your house is (almost) always going to be worth more than it takes to build it. Remember there’s value in your land, neighborhood, schools, view, etc. All that is unaffected by the loss of your home. And remember this…. NO MATTER HOW MUCH COVERAGE YOU PUT ON YOUR HOUSE, THE INSURANCE COMPANY WILL ONLY PAY YOU WHAT IT COSTS TO REBUILD IT. So here’s how a typical house can look. Remember there’s 3 key numbers associated with your house: Market Value, Amount of your Mortgage, and Rebuilding Cost. If your 2500 square foot home has a market value of $650,000 and your local building costs are $200/square foot, your rebuilding cost would be $500,000 (2500 x 200). Your mortgage could be $120,000, $400,000 or $0. Regardless of the loan amount or the market value, you’d want to have approximately $500,000 of insurance on that house. There’s some tricky thinking here that you need to consider. The cost of construction isn’t static, it’s always changing. Lumber cost changes almost daily, as an area builds more and less through changes in economy, the cost of subcontractors will fluctuate. At the end of this report you’ll see a special feature that my office offers you to help you be sure that you don’t get caught short as construction costs rise and fall. Look for this picture. –> Usually your house has what’s called ALL RISK coverage. That means that, except for a few exclusions, anything that happens to your house is covered. If there’s a loss to your house, the adjuster looks at the list of exclusions and if what happened isn’t there… it’s probably going to be covered. Remember that all insurance companies are different and it’s the policy contract that decides, not what I say here! Some common exclusions include flood, earthquake, riot, freezing of pipes in an unoccupied, vacant, or under-construction building, vandalism and malicious mischief if the building has been vacant for more than 30 days, normal wear and tear, intentional damage, damage from animals, birds, or fish, and war. These are just a sampling of exclusions. See your policy for your actual exclusions. Equally as important as the coverage for your home is your coverage for your stuff – Your Personal Property.

COVERAGE FOR YOUR STUFF

If your stuff is stolen from your car, IT’S COVERED under your Homeowners Insurance!!! There might be damage to your car though. THAT’S covered under your auto insurance. I’m sure you have car insurance ! ! ! (see 10 Ways to Beat the High Cost of Auto Insurance (Part 1) & (Part 2) ) This is the coverage that insures your personal property: Your sofa, dishes, clothes, television, stereo, art work, silver, china, watches, jewelry, blender and your socks. Generally, the amount of coverage the insurance company gives you for this is a percentage of the amount you have on the house. Usually it’s 75%. If you carry $200,000 on your home, then you’ll have an additional $150,000 for coverage on your personal property. Again, see your policy for your exact limits. Most of the time, this is enough. Occasionally you’ll need more. You can’t reduce it, but there’s usually a provision to increase the coverage if you need to. Here’s an important distinction on the actual coverages for your personal property as compared to the coverage for your house. You’ll remember that your house is covered for all losses EXCEPT for those specifically excluded. Your personal property is only covered for a specific list of losses. Here’s a typical list:

  • Fire or lightning
  • Weight of ice, snow or sleet
  • Explosion
  • Aircraft & vehicles
  • Smoke
  • Sudden and accidental tearing or bulging of heating or cooling systems
  • Windstorm or hail
  • Theft
  • Riot or civil commotion
  • Falling objects
  • Vandalism or malicious mischief
  • Sudden and accidental water discharge from plumbing or appliances
  • Freezing of plumbing systems

****Once again it’s important to check your own policy language for the specific coverages for your personal property. If you’re not sure, just give us a call. 619-670-1000

Now before we talk a little about the most important portion of your homeowners policy — Your Liability Coverage, let me mention one VERY COMMON MISCONCEPTION.

Homeowners insurance DOES NOT cover the mortgage if one of the owners should die. You’ll need MORTGAGE INSURANCE to cover that. Mortgage Insurance is simply life insurance that’s designed to pay off the mortgage at the death of one of the owners.

Life insurance can be somewhat overwhelming to purchase. You’re so afraid of making a mistake. It’s easy to incorporate your mortgage insurance TOGETHER with your regular Life Insurance and SAVE TONS OF MONEY in the process. Learn how with 7 Things You Need To Know BEFORE You Buy Life Insurance

If you own a home and anyone depends on your income to keep the home then mortgage insurance is a must for you! You have far too much invested in your home to allow those you love and provide for to risk having to lose the house if one of the bread winners dies.

It’s simple and easy and probably NOT AS EXPENSIVE AS YOU MIGHT THINK. You can usually get mortgage insurance for your home for about the price of a DVD a month! Think about it. Safety, security and peace of mind for about the cost of a DVD a month!

Liability Coverage

Remember we were talking about that LAWSUIT!?!?! Yes, it could happen to you! There’s ALSO coverage in your HOMEOWNERS INSURANCE for THAT ! Liability is the portion of your homeowners insurance that protects your home, your assets, your retirement savings and your future income! Someone slips and falls in your place, Breaks their leg, or cuts their hand. (Bummer if it’s a Plastic Surgeon) Your policy will pay whatever you’re legally liable to pay. (up to the limit of the policy, of course) That’s why at least a $1,000,000 limit is important there (especially if you live in California). Many offices will let you walk away with the standard $100,000. For just an extra $7/month, you get TEN TIMES the coverage — Almost a crime not to take that. If you own your home you should probably consider a Liability Umbrella. It gives you $1,000,000 coverage on your house and all your personal vehicles. You have just too much equity in your house and too much of your net worth tied up there to risk it by saving a few dollars a month.

Let me tell you a story….

Just this year a policyholder called me and told me that they were being sued because their son’s girlfriend accidentally let their dog out of the back yard. The dog made a beeline across the street and kicked the stuffing out of the neighbor’s dog. The homeowner was being sued by the neighbor for veterinarian bills that exceeded $3000 and for mental anguish, stress, and… well, you know the drill. Fortunately the homeowner had not only their homeowners insurance but also a Liability Umbrella standing between this crazy neighbor and everything they owned. Without that, this could have been their problem…

They could have been paying off this “little problem” for years. They could have risked everything they own in addition to their FUTURE EARNINGS by not having the foresight to get HOMEOWNERS INSURANCE and a LIABILITY UMBRELLA policy. You can insure your home, your personal property and your liability exposure in one simple policy.

BUT WAIT ! ! ! ! THERE’S EVEN MORE ! ! ! Homeowners insurance also includes Medical Payment coverage. That pays for MEDICAL EXPENSES up to the limits of the policy for people who are on your premises with your permission and accidentally injured. And ALSO for people injured by your activities. Coverage doesn’t pay for medical expenses for you or members of your family that live with you.

BUT WAIT ! ! ! ! THERE’S MORE!!!!!! You also get what’s called LOSS OF USE or ADDITIONAL LIVING EXPENSES coverage. Whenever your place is rendered UNINHABITABLE because of a covered loss, we’ll pay the cost to put you up someplace else while your place is being repaired. I’ve actually written checks to people sitting outside their burned residence to pay for a hotel. VERY COOL!!!! This pays up to 24 MONTHS! ! Hopefully you won’t be out that long, but it’s THERE IF YOU NEED IT ! ! ! !

BUT WAIT ! ! ! ! THERE’S SOME MORE!!!!!! You know how things just get more expensive every year. We’ll automatically increase the amount of your coverage every month FOR FREE until your next renewal to keep pace with inflation. When you renew you policy each year, it will be for the newer IMPROVED amount of coverage. BUT WAIT ! ! ! ! THERE’S STILL MORE!!!!!! (starting to sound like one of those Ginsu Knife Commercials..?) I mentioned this up above but you might have missed it. If someone steals your checks or credit cards and you suffer loss cuz they’re out there spending YOUR MONEY, you’ll have coverage for that up to $1000. “WOW”, you say! And all that’s included in the Homeowners Insurance we provide in our office. Hey, Let’s talk about Deductibles for a second…. The deductible is the portion of a covered loss that is your responsibility. They are typically available in amounts such as $250, $500, $750, or $1000.For example, if you had a $500 deductible, you would need to pay the first $500 of the covered loss and we’d pay the rest.Generally speaking, higher deductibles lower your premium, but increase the amount you must pay out of your own pocket if a covered loss occurs. Ask yourself how much you are willing to pay in order to save on premium. … you know what, just ask us when you’re in the office and we’ll show you how simple it is to calculate.

SO what’s the best way to buy HOMEOWNERS INSURANCE ?

RULE #1 – Don’t over-insure and don’t under-insure. Get the right amount of coverage. Yes, you’ll have to estimate how much stuff you have.

We have convenient calculators in our office to estimate this for you.

RULE #2 – Take the biggest deductible you can afford. (within reason). Increasing your deductible from just $500 to $1000 will usually save you about $75 per year. Let us help you do the math to see how long it takes you to absorb the difference in the two deductibles.

We can help you walk thru those numbers and find the best blend of deductible and price… Takes about 3 minutes.

RULE #3 – Get at least $500,000 of liability coverage (especially if you live in CALIFORNIA!) People just love to sue in good old CaliforNyeYay.

You need someone who explains and helps you with this. It’s just what we do…

RULE #4 – Only get policies with REPLACEMENT COST coverage for your contents. (all of the policies we offer in our agency have this provision.) This is a cool one. Provision sez that if you suffer loss to your stuff, and you replace it, we’ll pay you what it costs to get a brand new one rather than what your old one was worth.

We automatically add this to all your policies unless (for some reason) you tell us not to.Looks like this. Someone steals your 8 year old TV set that’s worth $75 and a new one is $350, we’ll pay you based on the $350 rather than the $75! VERY COOL!

RULE #5 – Take the PERSONAL LIABILITY option in the LIABILITY SECTION of your policy. That gives you coverage for things like slander and libel. Californian’s, for some crazy reason, get all bent out of shape if you talk to them or about them the wrong way.

We automatically add this one too. Unless you don’t want it…

RULE #6 – Don’t forget to check out things like Special insurance for your baseball card or Precious Moments collections. There’s limits on those kinds of things. You might also need to look into waterbed liability, or business liability (if you run any kind of business out of your home.) And don’t forget EARTHQUAKE coverage.

We’ll walk you thru a checklist of all those things just to make sure we don’t forget anything. You may not need any of them, but we just want to be sure.

RULE #7 – Only get a homeowners policy with GUARANTEED EXTRA REPLACEMENT COST (GERC) coverage for your home. (the structure!) This is SO IMPORTANT. We offer policies that will pay you up to an EXTRA 20% above the actual amount of coverage. For example, let’s say you’ve lost your 2500 square foot home to a fire and it was insured for $200 a foot — $250,000. But there’s a recent spike in the cost of materials and the real cost comes to $285,000. OUCH! Looks like you’re going to have to dig into your pocket for $35,000! Not so with the policies we write in our office. Our company offers you, AT NO EXTRA CHARGE the GUARANTEED EXTRA REPLACEMENT COVERAGE at an additional 20%. Your $250,000 will actually pay you up to $300,000 to rebuild your home.

With GERC, your policy for $250,000 will actually pay you up to $300,000 to rebuild you house. And OH BY THE WAY… This is included automatically at no additional premium on ALL of our homeowners policies!

And don’t forget EARTHQUAKE coverage. I know there’s a lot to think about. So let us help you remember all of it. One step at a time. This can be so simple and easy to do.

We do all the work for you and in less than 30 minutes, you’ll have protected your home, your personal property, your current assets and your future earnings.

Why somebody wouldn’t buy HOMEOWNERS INSURANCE this way is simply beyond me. BUT LET ME MAKE A LITTLE EASIER FOR YOU… In our agency we offer you 5 different ways to pay for this. You have your choice of Annual, Quarterly, Semi-annual, monthly and SPECIAL MONTHLY… “So what’s so special about SPECIAL MONTHLY,” you might ask. It’s special cuz it’s just so insanely easy. We set it up for you and your monthly payment comes right out of your checking account: Same day; Every month. (of course of your insurance is already part of your house payment, we’ll set things up so that continues just as it’s always been for you) So, here’s what you get…

  • Coverage for your home: The right amount so you sleep well.
  • GUARANTEED EXTRA REPLACEMENT COST for your home. AN ADDITIONAL 20%
  • Coverage for your stuff: TV, stereo, blender, dishes, clothes, etc.
  • This coverage at REPLACEMENT COST (as I explained above)
  • Liability Protection. (assets AND your future earnings)
  • A place to live while we put your place back together
  • We’ll walk you thru the whole process (probably will take less than 30 minutes)
  • Confidence that you’re buying the insurance you need: NOTHING MORE, NOTHING LESS

It Just doesn’t get any better – OR EASIER – than that… You’ve got everything to gain and NOTHING to lose. I look forward to talking with you soon!

Sincerely,  
For a Quote, Go to DennisVolz.com
  Dennis Volz Insurance Agency
10791 Jamacha Bl, Suite 1, Spring Valley, CA 91978
OFFICE: (619) 670-1000 - FAX: (619) 670-1121 - Cell (619) 339-1339
Email: Dennis@DennisVolz.com
Websites: DennisVolz.com and TheSanDiegoInsuranceBlog.com

All posts on The San Diego Insurance Blog contain only a general description of coverages and is not your insurance contract. Details of coverage or limits will vary. All coverages are determined by the terms, provisions, exclusions and conditions of your policy along with any endorsements.

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