What Coverage amount should I pick for my Homeowners Insurance?

How much coverage do I need to rebuild my home?

Let’s revisit this topic that we initially posted back in 2014. With inflation running rampant, now seems like a good time for a refresher. Imagine how devastating it would be to lose your home in a fire or a storm. Now imagine having to chip in $30,000 from your own pocket to be able to rebuild it completely because you didn’t have the correct amount of insurance.

Selecting the proper amount of coverage is one of the most important decisions you can make with your homeowners insurance policy. Without proper limits, you may not have enough coverage to rebuild after a total loss. You want to make sure that the amount of the insurance on your home is equal to the reconstruction value. This is called “insurance to value.” Below are some explanations and tips to help you make the right choices for your needs — and remember, if you need help, we’re just a phone call away (414-744-6614)!

What is insurance to value?
Insurance to value is the relationship between the amount of coverage selected (typically listed as “Coverage A” or “Dwelling Coverage” on your policy) and the amount required to rebuild your home – simply put, Coverage vs Reconstruction Value. Insuring your home for anything less than 100% insurance to reconstruction value could mean you wouldn’t have enough coverage to replace your home in the event of a total loss. At the Insurance Center of Milwaukee, we have access to a computer program (that is updated quarterly) to help determine the proper amount of insurance for your house located anywhere in Wisconsin! This is especially important with current rising labor and material costs. The cost of lumber, shingles, cement, etc have skyrocketed in the last two years.

Why is the cost to rebuild different from the market value?
A home’s market value reflects current economic conditions, school districts, the value and location of the land, and other factors unrelated to reconstruction cost. The cost to rebuild your home is based only on the cost of materials and labor in your area. Think of it this way – where ever you build a 1500 square foot home in SE Wisconsin (Milwaukee, Oak Creek, Greenfield, Franklin, etc.), it will cost about the same for the labor and materials even though the market value could be drastically different. That is why it is important that you insure your home based on its reconstruction cost, NOT its current market value.

Why is reconstruction more expensive than new construction?
New home builders typically build many homes at once, and solicit bids from various sub-contractors to receive the best pricing. Their business model is based on economies of scale. For example, they may purchase 100 windows at one time, securing a lower “per window” cost. These economies of scale don’t exist when building (or rebuilding) a single home. During reconstruction the contractor has to be careful not to damage the existing landscaping and may have to work around features in the interior of the house as well.

Talk to your agent to make sure your home is insured properly!