“Why do I need that much homeowner’s coverage?”

Home real estate

Homeowner’s insurance is protection for you financially against expensive damages to your home that you would not be able to pay out of your pocket.  When you invest so much time and your hard-earned money into your home, you want to make sure that your investment is protected and protected to the degree that meets your needs.  In the sense that your home was destroyed, would you want the entire home back or just half your home?  Well, most people are going to want the entire home back completely the way it was before.  You would too, right?  Probably, most do want their home insurance to rebuild 100%, but some do want a lower amount.  At times the dollar amount of coverage insurance companies suggest to place on the home seems “really high” and you think “I don’t need that much coverage, I only purchased the home for _______ amount.”

A lot of folks wonder how the home insurance companies come up with the suggested amount of coverage to rebuild 100% of your home. Let’s go through that…

The home insurance company has a software program that takes all the features of your home; square footage, exterior finish, # baths, etc… Once all of these details are input, the software calculates the cost to not only rebuild the home but to also remove debris of the current home. It’s important to remember this is only an estimate, a suggestion, but a good guide.  

If you’re wondering why is the home insurance amount higher than the amount you paid for your home, that’s simple: depreciation. Arkansas has very few areas that home prices outpace reconstruction values.   Therefore, the purchase price of your home has depreciation built-in so it will always cost less to buy the home than it would be to rebuild the home board for board.  These home insurance estimates for “reconstruction” include cost of material, labor, etc…in today’s market with no depreciation in it because the intent is to put you back to exactly what you were before, no more no less.  

If a home insurance claim does occur, it’s hard to imagine all the cost if you experienced a total loss including all the debris left behind from cleaning that up to getting your home rebuilt. I guarantee if you ever do experience a total loss you will be very glad you had all the insurance to get you back to where you started with the same size & type of home.


Darin Hoover