One of the largest investments you'll most likely ever make is your home, and naturally, you'll want to insure it adequately. But how do you determine the right amount of homeowners insurance coverage to have?
First things first: Don't make the mistake of assuming you only need a homeowners insurance policy to cover only the market or resale value of your home. In some cases, this may be a sufficient amount of coverage. In most cases, it's not. This is especially true for older homes and homes in urban areas suffering from a decline in property values. In fact, market value has very little, if anything, to do with what's known as replacement cost.
To help you determine how much home insurance you need, homeowners insurance companies will likely calculate the cost to rebuild a home based on certain criteria, including:
- square footage
- type and quality of construction
- cost of materials
- any additional amenities or special features
Knowing this, make sure you request a policy that includes full replacement cost of your home when you get a quote for homeowners insurance.
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