Do You Have Enough Homeowners Insurance? You May Not for One Big Reason

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  • It costs more to build and fix a home these days.
  • For that reason, you may need to reassess your homeowners insurance coverage.

You may need to up your coverage this year.

There are many reasons to have homeowners insurance. First of all, it's a prerequisite to getting a mortgage, so if you need to finance a home (which is the case for many buyers), it's a step you have no choice but to take.

But also, the purpose of homeowners insurance is to protect you in the event of property damage, theft, and other such potentially catastrophic occurrences. In fact, a big facet of your homeowners insurance policy is your replacement cost coverage. The logic is that if your home were to get destroyed, you'd want your policy to pay a large enough sum to allow for your home to be rebuilt. You'd also want that rebuild to result in a comparable home to the one you've been living in.

But the amount of replacement cost coverage you secured years back may not be enough in today's market. That's something you should really check on -- before it's too late.

Do you have enough replacement cost coverage?

These days, building materials are up across the board. It may cost more than usual to rebuild your home should that need arise.

That's why it's so important to make sure your homeowners insurance policy provides enough coverage in the event of extreme property damage. If it doesn't, you could end up in a bad situation if your home needs to be rebuilt.

Now to be clear, if you don't have enough replacement cost coverage to rebuild your home, you'll still get a payout from your insurance company. But that payout may not be enough to build yourself a comparable home. You may end up having to settle for a smaller home, or one that lacks some of the features you've come to enjoy. That's definitely not ideal.

Check your insurance coverage

If you're not sure whether you have enough replacement cost coverage, contact your current insurer and ask to have your policy analyzed. You can also take a closer look at your policy yourself and run your own numbers to see if your coverage is adequate.

As a general rule, your home should be insured to at least 80% of its replacement cost. If you maintain that coverage at a minimum, your insurer will generally cover the full cost of repairing damage or rebuilding your home. But if your policy covers less than 80% of your home's replacement value, then your insurer may not fully cover the cost of rebuilding your home should that need arise.

Homeowners insurance is an unavoidable expense for anyone who owns property. And it's an expense you may want to save as much money on as possible. But while it's okay to shop around for different premium rates, one mistake you shouldn't make is skimping on replacement cost coverage -- especially these days, when replacement costs may be higher than usual. Doing so could leave you in a serious lurch if your home sustains extreme damage, and that's not a risk you should be willing to take.

Our picks for best homeowners insurance companies

There are many homeowners insurance companies to choose from. We’ve researched dozens of options and short-listed our favorites here. Looking for a green build discount or easy bundle policies? Want an easy-to-use interface? Read our free expert review and get a quote today.

Our Research Expert

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