Homeowners Insurance Dwelling Coverage Inquiry
I own a two-story home in Round Rock, TX, which is nearly 2,900 sq ft. If we were to sell, I estimate it could go for around $450,000.
Currently, my dwelling coverage on the insurance policy is set at $313,000, with an annual premium of $2,379. I’m wondering if this amount provides adequate protection.
Increasing the dwelling coverage to $450,000 would raise the premium to $2,900, which seems a bit steep.
What would you recommend for the proper dwelling coverage amount?
When determining the appropriate dwelling amount for homeowners insurance, several factors should be considered:
Replacement Cost vs. Market Value: The dwelling amount should reflect the replacement cost of your home, not just its market value. Replacement cost is the amount it would take to rebuild your home from the ground up in the event of a covered loss, considering the current construction costs and materials. It’s important to note that this can be different from the selling price or market value.
Local Construction Costs: In Round Rock, TX, you should research the local construction costs per square foot. This can help you better estimate the replacement cost of your home.
Recent Renovations or Updates: If you’ve made significant improvements or renovations to your home, you may need to adjust the dwelling coverage to reflect these upgrades.
Insurance Industry Guidelines: Many insurance companies suggest a coverage amount of around $100-$125 per square foot as a baseline for estimating the replacement costs for homes in many areas. For a 2,900 sq ft home, this could fall in the range of $290K-$362K, but this is quite variable depending on your home’s specific features and local market conditions.
Consultations with Insurers: It might be beneficial to consult with your insurance provider. They can give you a clearer understanding of local rates and help you assess whether your current coverage is adequate or if there are additional factors to consider.
Given that your current dwelling coverage is set at $313K with a possible $450K market price, your current insurance seems a bit low unless you have established that replacement costs in your area are lower. Increasing coverage to match potential selling price isn’t usually necessary, but it is critical that it matches the estimated rebuild cost.
I recommend obtaining a replacement cost estimate from an insurance professional and potentially adjusting your coverage based on that information. It’s better to be slightly over-insured than under-insured in the event of a total loss.