Valuing Homeowners Insurance

Do you have any guidelines on how much insurance to carry on my house? It is fully paid for. Should I carry full replacement? Or is it reasonable to carry a lesser amount?  



This is a great question. It depends a lot on the amount of risk you can afford to take. It may also depend on your age and whether you are still in your prime working years.


If you have lots of savings and can afford to have some of that eaten up by rebuilding, you may want to consider the "basic" homeowners insurance. This insurance generally will give you replacement value, but will deduct depreciation on some aspects of the home.


Full replacement value insurance (which doesn't deduct for depreciation, and/or allows for expensive rebuilding techniques to return a home to its previous "historical" significance, for instance) is going to cost you more money. Is this money well spent? Well, that depends. If you do have a century home and you would want it restored to its former elegance, you may be looking at substantial costs to have equivalent finishes and decorating. Again, if you are still working and/or have a good savings base, you may be able to foot some of the costs yourself and therefore be willing to take more risk.


If you are retired, and don't want to have to carry a mortgage or other debt in the future to finance rebuilding, then you might want full replacement insurance as well. The issue is really one of comparing your personal needs, wants and resources with the amount of risk that a fire takes place and damages your home.

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