Homeowners Insurance Coverage Inquiry
I own a nearly 2,900 sq ft, two-story home in Round Rock, TX 77665. I’m estimating that if we were to sell, the house could fetch around $450,000.
Currently, my dwelling coverage on my homeowners insurance is set at $313,000, with an annual premium of $2,379. I’m wondering if this is sufficient coverage.
Raising the dwelling amount to $450,000 would increase the premium to $2,900, which seems excessive to me.
What do you recommend for the appropriate dwelling coverage amount?
Determining the appropriate dwelling amount for your homeowners insurance is crucial to ensure you have adequate coverage in the event of a loss. Here are some factors to consider:
Replacement Cost vs. Market Value: The dwelling amount should reflect the cost to rebuild your home, not just its market value. Replacement costs can differ from market values, especially in fluctuating real estate markets.
Local Building Costs: Research local construction and labor costs. In some areas, the cost to rebuild can be significantly higher than what you might sell the home for. You can consult with local contractors or use online calculators to estimate replacement costs.
Home Improvements: If you’ve made any upgrades or renovations, those should also be taken into account. High-end appliances, flooring, and finishes can increase rebuilding costs.
Insurance Policy Terms: Review your current policy. Some policies offer additional coverages, such as extended replacement cost coverage, which can provide more than your dwelling amount in case of a total loss.
Annual Premiums: While a higher coverage amount may increase your annual premium, it’s essential to weigh that against the risk of underinsurance. Being underinsured can lead to significant financial losses in the event of a claim.
Consult an Insurance Agent: It might be beneficial to reach out to your insurance agent for a policy review. They can provide insights into the appropriate dwelling amount based on your home’s specifics and current market conditions.
Given your current dwelling coverage is $313K and considering you believe the home could sell for $450K, it might be worth raising your coverage closer to the replacement cost rather than the sale price. Adjusting it to a range around $375K-$400K might balance coverage and premium costs effectively. Ultimately, assess the risk of being underinsured versus the increase in premium to decide what feels right for you.