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How Much Homeowners Insurance Do I Need?
As a general rule, you should have enough homeowners insurance to fix or replace your house and everything in it if it is totally destroyed. The main building, any sheds or structures like a garage, pool, or fence, as well as your furniture, clothes, and other belongings, could all need repairs. Figuring out how much it will cost to replace your house and everything in it is not as hard as it may seem. The Insurance Information Institute or a qualified insurance agent or realtor can help you through the process.
Multiply your home’s square size by the local building cost per square foot to get a rough idea of how much it would cost to rebuild it. For example, if your home is 2,200 square feet and the average cost to build is $80 per square foot, it would cost about $176,000 to rebuild it. Ask an insurance agent, a real estate agent, or an appraiser about building prices in your area.
The next step in figuring out how much home insurance you need is making a list of everything you own. Keep track of when and where you bought things, especially expensive ones. Take pictures and movies, and if you have receipts, keep them. If you need to make a claim, it will be easier if you have good documentation.
Don’t forget outdoor furniture and equipment, like a barbecue grill, as well as collectibles, musical instruments, hobby and sports equipment, items that are out of sight, like linens and silverware, and things that are in the attic or shed. Think about how much it would cost to replace each item with a new one of the same kind, not how much you paid for it at first. Replacement costs can change quickly, and even a two-year-old appliance might be much more expensive now than when you got it.
After you figure out how much it will cost to rebuild your home and make a complete list of your things, you’ll have a good idea of how much homeowners insurance you need.
Who shouldn’t get insurance for their home?
If you get a mortgage to pay for your home, your lender will probably make you buy homes insurance. The reason for this is that lenders want to be able to get their money back if the loan goes bad. If you buy your home with cash or pay off your mortgage, you might not need homes insurance.
But experts say it’s not a good idea to skip homeowners insurance to save a little money, even if you have the choice to do so. Hunter says, “It’s clear that there are some people who could pay for, or even easily pay for, to lose their home.” “But for most people, their home is their largest asset, and losing it would be a financial disaster.”
What should I look for in a policy for home insurance?
When looking for a homeowners insurance policy, look for one that gives you the coverage you need at a price you can afford. Also, choose one from a reliable company that does business in your area and does well in our ratings. You should also talk to a few insurance agents to figure out which one you want to work with.
Doug Ommen, who is the insurance commissioner for the state of Iowa, says, “Do your research about insurance companies online.” “We always tell people to go to the insurance page for their state. Some states give information about how complaints are being handled.” Also, choose a company with a good rating from AM Best or another rating service for its financial strength.
Work with your agent to make sure you have enough coverage for anything that goes beyond what a normal homeowners insurance policy covers. Even though most policies cover your home, outbuildings, furniture, appliances, and other belongings, there are limits for different categories and things in most policies.
If the value of your jewelry, artwork, or collectibles is higher than these amounts, you may need extra coverage. Janet Ruiz, who is in charge of strategic messaging at the Insurance Information Institute, says, “Talk to your insurance agent and think about what you own.” “You may need extra coverage if you have expensive art collections, a very large home, or intricate woodwork, among other things.”
After making a list, it’s important to keep it up to date. Every year, you should look over your insurance needs and add any new things. “Anything new you brought into the house may not be covered,” says Ommen. “Jewelry or a gift could be too expensive for you. We tend to close ourselves off and get lost.”
Is insurance for a home tax-deductible?
Most of the time, homeowners insurance isn’t tax-deductible, but there are exceptions for rental properties and people who run a business from their house.
“A landlord can deduct insurance premiums paid on rental property,” says Kevin Martin, Principal Tax Research Analyst at H&R Block’s The Tax Institute. “Also, if someone uses a home office as part of their own business, the portion related to that home office is tax-deductible.”
Martin mentioned another tax break that home-based businesses may be able to get.
“Sometimes, if a person runs a business out of their home, they may need to get special insurance for that business,” he says. “You can also deduct those premiums.” Before the Tax Cuts and Jobs Act was passed in 2017, anyone who worked from home could deduct a portion of their mortgage and homeowners insurance payments for a workspace. Now, Martin says, “You can only deduct a home office if you work for yourself or run a small business.”
Only after a big disaster can you get an extra tax break. “When a home is damaged or destroyed and insurance pays the policyholder the coverage amount, that insurance recovery is usually not taxed,” says Martin. “You will only have to pay taxes if the amount of your insurance payment is more than your basis, which is usually the price you paid for the home.
Farmers’ standard house insurance policies usually cover the dwelling, other structures, personal property, liability, and extra living costs if your home can’t be lived in because of a covered loss. You can also buy extra coverages, but keep in mind that the number of options may be limited based on where you live.
Farmers offers discounts on homeowner’s insurance for things like having more than one policy with the company, adding a home security system or other safety devices, not making a claim for three years or more in a row, and paying on time. The insurance company also gives savings to people who work in certain jobs, like being a firefighter, teacher, doctor, nurse, or in the military. Depending on where you live, there may also be deals that are only good in your state. Based on our sample coverage, Farmers’ home insurance would cost about $134.50 a month.
The company lets you get quotes online. You can make a claim online or by calling the company’s claims line and talking to a company representative. The company says that filing online takes less than five minutes to do.