No one questions the importance of obtaining home insurance. However, it’s the amount of coverage one should get that sparks debate. After all, the cost of insurance—while comparatively small compared to the losses you might face—is not something to regard lightly. If you buy too much, your premiums become a burden; if you buy too little, you leave yourself vulnerable to disasters.
So how do you decide how to choose the right amount? Take a look at these important factors:
Account for Present, Not Past Value
Many homeowners make the mistake of insuring their home in accordance to the purchase price. Why isn’t this enough? If you bought your home 10 years ago for $300,000, its valuation will certainly have increased, so that coverage amount will no longer reflect the current value of your home. If your home were ever to get razed to the ground, the cost of rebuilding it will certainly be higher because of inflation. Therefore, always insure your home based on its value and not its purchase price.
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