How much homeowners insurance should I purchase?
While the simple answer is that you should purchase a big enough limit to cover all of your property in the case of a total loss, this question is a little bit more nuanced than it initially appears. To determine what limit you should purchase, you should also know what property is actually included.
There are a couple different homeowner insurance forms available out there, but all of them have coverage for property and liability. Leaving liability coverage aside, there are four sub-sections within your homeowners property coverage, each with separate limits:
- Detached Private Structures
- Personal Property
- Additional Expenses
Let's talk about the first three in more detail.
Dwelling/Building includes the cost to rebuild the primary building as well as outdoor plants, any permanently attached equipment (such as swing sets), and any building maintenance or repair supplies (perhaps a small amount of shingles meant for roof repair).
This is where you want to focus your attention because all other limits are based on this number.
Detached Private Structures
The limit for this is 10% of the limit selected for the main building.
These are the contents of the building and is typically covered for 60-90% of the building limit.
The trap here is that the value of your personal property is usually larger than you would initially estimate. Just try calculating how much it would cost to re-purchase your entire wardrobe!
So, as you can see, when picking a homeowners insurance limit, you should focus on the figuring out what your building limit should be. But be careful when adding up the numbers because the insurance definition of a building goes far beyond what you likely consider the building itself. Then, you have to make sure that 10% of that number is enough for your detached private structures and 60-90% of that is enough for your personal property (for more help shopping for home insurance, see 5 Keys to Homeowners Insurance for First Time Homeowners).
Written by Jacques Wong
Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won Insurance Council of BC awards in 2015 and 2020 for academic excellence in the insurance licensing courses. He educates insurance professionals through PNC Learning and as a Thought Leader at ReFrame Insurance.
In his day job as an insurance broker, he helps businesses with creative risk management solutions and strategic advice when it comes to insurance.
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