Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 15, 2021

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Homeowner’s Insurance Q&A: “How much homeowner’s insurance do I need?”

Most of us know that homeowner’s insurance is mandatory if you have a mortgage, but very few know how much coverage is actually needed?

You don’t want to be “under-covered” in the sense that you don’t have any extra coverage, but at the same time you don’t want to be oversold and wind up paying far too much for coverage you don’t need.

There are also factors like the location of your home to consider. For example, if you don’t live in a climate prone to natural disasters then flood insurance, windstorm coverage, or sinkhole coverage would hardly serve a purpose.

As a rule of thumb, it is recommended you purchase as much homeowner’s insurance as you can afford. Period. You never know when you’re going suffer a loss related to what is likely your biggest investment and most valuable asset.

But to properly evaluate your homeowner’s insurance needs, you must look at your unique financial situation and consider both the liability and property damage portions of your homeowners policy.

Let’s start with the liability portion of the policy:

Very few assets:

If you don’t have a lot of assets to protect in the event someone is severely injured or killed on your property, or if you damage another person’s property, you may be able to get away with the lowest personal liability coverage offered, which is typically $100,000 for a homeowner’s policy.

A coverage limit is more likely to be encountered if you choose a standard policy. Remember, if anyone is hurt on your property, you are considered at fault. There are almost no questions asked here. Those “silly” stories regarding individuals breaking into a home, hurting themselves and suing the owner…and winning…are true in some cases.

Policy limits won’t disappear in the face of medical expenses or unexpected extra costs. Before deciding on a type of coverage, make sure to review the policy terms.

Some assets (IRA, 401(k) / Business owners:

The most commonly sold liability limit for a homeowner’s policy is $300,000. It is recommended you purchase at least this amount of liability insurance to properly protect your assets. Hazard insurance for your business is suggested if you live in an area where civil commotion is common.

High net worth individuals:

You have a lot to lose. And you need to protect it. A $500,000 liability limit would likely be your minimum option. After all, the more money you have, the more susceptible you are to high dollar settlements if you’re sued and lose.

It is also highly recommended that you purchase a personal umbrella policy in addition to your existing home and auto insurance policies to make sure you are as protected as possible.

Now let’s look at property coverage:

It’s important to know how to read a homeowner’s insurance policy to make a really informed decision about what level of property coverage you need. Just like everything else insurance related, homeowner’s policies offer a wide spectrum of coverage.

There are those who want the minimum coverage at the lowest price and those who are willing to pay a little extra to make sure they don’t have a care in the world when it comes to having their property covered…and of course everything in between.

If you own valuable items, you’d want to have replacement cost coverage for extra protection. A standard homeowners policy with basic coverage may suffice for those who don’t have a lot of personal property. You can also purchase a separate policy if you acquire more property.

Tip: There are insurance companies out there that offer the highest level of homeowners coverage available at a price that can be lower than what some pay for the least amount of coverage.

So the more informed you are, and the more shopping you do, the more money you will save.

It is recommended you work with an independent insurance agent to obtain the most comprehensive homeowner’s insurance coverage available at the lowest cost.

Captive agents can only offer you a single policy at one premium. They often have to reduce coverage to get you a lower premium, whereas an independent agent makes insurance companies compete for your business.

Your insurance company or agent can also assist you if you’re not exactly sure what types of coverage you need.

Read more: Be sure to check out the many types of homeowner’s insurance out there, along with the common homeowner’s losses many people may not be covered for.