How to Evaluate if Your Homeowners Insurance Coverage Amount is Enough

For all that you pay to protect your home, do you have the right coverage sufficient for every contingency?

More than that, do you have the right amount of coverage so in case of a catastrophe, you can recoup without decimating your finances?

It’s estimated that as many as 64% of U.S. homeowners are underinsured by an average of 27%.¹ If you’re among them and live in an area prone to the rising number of natural disasters like floods, tornadoes, hurricanes and wildfires, your risk posture increases exponentially.

The reality is that even when homeowners think they have the right coverage, it may not be enough. For instance, the National Flood Insurance Program (NFIP) covers up to $250,000 for the structure of a home, as well as $100,000 for the contents of your home. But for many, this isn’t enough.

How much coverage is enough?

To evaluate the sufficiency of your homeowner’s insurance policy, consider what determines the level of protection you need for each category of coverage: Property damage; additional living expenses (only if incurred if home is rendered uninhabitable due to an accident or natural disaster); personal liability; and medical payment coverage.

Each category is required, but the amount of coverage that you need in each is dictated by three factors:

• The assets that you want to protect, like your possessions, your type of home and your financial cushion. Combined, they influence your premium, deductible, and coverage considerations. A substantial financial cushion, for example, may mean you can lower your premium, since you’ll need less assistance to recoup losses. But it can also make you vulnerable to lawsuits — possibly warranting a boost in liability coverage.

• How much your mortgage lender requires, which is at least the balance that you owe in the case of a catastrophic loss. But you need to benefit, too, so it’s important to insure to the cost of rebuilding your house. This can be a lot more than you expect after a catastrophic event, so get guidance from your broker on options (especially if you’re in a high-risk area). Two options: 1) Extended replacement coverage pays as much as 125% of your policy limit for rebuilding and 2) guaranteed replacement cost coverage (a very expensive option) covers rebuilding whatever the cost.

• Insurance company requirements, which is mandatory to qualify for general homeowner insurance. Flood insurance, for example, is often required if you live in a Federal Emergency Management Association (FEMA) flood zone. 

That last requirement raises another consideration worth discussing with your broker. You may not live in a high hazard flood zone and your insurer and or mortgage company may not require flood insurance. However, approximately 20% to 30% of flood insurance claims occur in moderate to low risk areas not considered high hazard areas by FEMA. In fact, 16.2 million properties will be at “substantial risk” of flooding by 2050.^[2]

Should you get flood insurance, even if your home isn’t eligible for NFIP? And are you covered for the mold and sewage backup that can accompany all that water?

If you are eligible for NFIP coverage, know that the cost varies according to your risk of flooding and that there’s a 30-day waiting period for coverage to kick in after you buy a policy. Discuss these questions with your HUB broker.

To learn more on how to secure the right insurance option for your needs, or for a quote, contact a HUB personal insurance broker.  

¹Kin.com, “How many homes are underinsured?” April 12, 2021.

²The Washington Post, “Millions of homeowners face flood risks without realizing it, and climate change is making it worse,” June 20, 2020.