How much homeowner’s insurance coverage do I really need?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 17, 2012

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Insurance Question from Missouri City, TX

Asked on 07/17/2012

How much homeowner’s insurance coverage do I really need? I understand the requirement to cover the loan amount, or any other lender requirement. My question centers around full replacement value. Some companies are telling us that we should insure for a number close to the full appraisal value. Others are saying the full appraisal value includes the cost of the land, so 80% or so of the appraisal value, or loan amount (whichever is higher) is sufficient to cover the replacement of the house itself. I can understand that logic, but it differs from what I've been told and have done in the past. Advice?

Answer given on August 08, 2012

Homeonwer insurance companies all want you to carry the full replacement value of your home. How this amount is determined varies widely.Some insurance companies hire a firm to inspect the home and determine its replacement cost. Others have their own program that the agent uses to determine the replacement cost. These figures don’t always take into consideration of the wide range of building costs throughout the country, but it is an acceptable way to come up with a figure.Appraisals from real estate appraisers can also be used, but they are often lower than the figure that insurance companies determine in their own process. A real estate appraisal has a figure for the market value of the home, which includes the property but they also have a section that they determine to be the replacement cost of the home itself. They usually include a depreciation in this value, which insurance companies do not use.Talk to your insurance company and see what they determine as the replacmeent cost. You can use a higher value, but the comany will not let you go below their determination of the replacement cost.

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