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how much home insurance?

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  • how much home insurance?

    I was hoping to get others' perspectives on what constitutes an optimal level of home insurance for those that are at or close to FI.  I realize keeping the deductible high is intelligent -- I can afford a new window or 10 new windows.  However, do any of you have a heuristic regarding how to think about a total loss in the case where someone has a significant amount of equity in their home, but also have a sizeable asset base from which to draw in case of a catastrophe?


    I'll use myself as an example.  Mid-40's, still working full time as a specialist MD, no debt excepting mortgage, and assets of just over $2 mil (excluding my home).  I have $550k left on my mortgage, but my home would easily sell for $1.3m.  I live in coastal CA.  Right now, my home is insured for a rebuild cost of $665k with a "code upgrade" rider (meaning the insurance co would pay any extra requiring a newly built home to be up to current code).


    I live in a very HCOL area and building is very costly.  So, let's assume my house burns to the ground and it takes $865k to rebuild it.  The insurance would pay for $665k of that and I'd chip in the extra $200k.  That doesn't seem unreasonable to me since writing a check for $200k would really suck, but in the end it would just push my time to FI back a few years.  Plus, the chances of a total loss are very small.  That said, home insurance isn't really that expensive and paying another $100 or $200 per year would probably get me another $100k of insurance.


    Essentially, the question here is: how much is the optimal amount of "wealth insurance" to preserve one's home equity in case of a total loss?

  • #2
    I've been curious about that too. Even with a total loss you still own the land so all you're looking at is actual rebuilding costs (supplies and contractor labor) rather than "market value". Not relevant for me yet but curious about what others will say


    • #3
      You are truly financially independent your house could burn down uninsured and you would not be effected.  I do carry homeowners because it is cheap.


      • #4
        One usually insures dwelling plus rebuild cost. I imagine you could probably insure as much or as little of it as you want. For my mortgage, X% of insurance was required, but there was a small amount of wiggle room with it. With less owed on the house, your bank may just require a different amount to be insured.

        If my note were paid, I'd still want it insured because I like my house, and insurance isn't that much...just like hatton1 said.


        • #5
          Need some homeowner's insurance to have an umbrella policy I believe. So I wouldn't go without.

          Otherwise adjust coverage level to your level of comfort. I prefer to hold a reasonably high covered amount with a high deductible.


          • #6
            There have been some interesting articles about the plight of homeowners burned to the ground in N. Cali fire

            earlier this year.  You will need to take into account the contents of the home and it would be best to do

            comprehensive V-log of that storing the result on several USB chips in a safe deposit box.  Articles suggested

            that rebuild costs would be significantly higher than expected, in part because of labor shortage, but also

            inscos can be very difficult to deal with.  In your circumstance, with a solitary burn down and not a conflagration,

            you could probably afford to finance the rebuild, assuming no problems with local building codes, commissions

            and inspectors which are also a problem in N. Cali.  You might ask around in your locale what others

            experiences were.


            • #7
              I would insure for the full cost of rebuild and no more.  Deciding to self-insure $200k of the rebuild IMO is a pretty expensive decision in the event of loss, and a cheap one not to make.

              The best way to trim your premium is to read your policy, know what it covers, and understand what you're likely to claim and what you're not.  For example:

              Bump up your deductible.  Are you really going to make a claim for a grand or two?  Probably not.  A $2,500 deductible or higher can save you a lot on the premium vs a zero or low deductible.

              Only carry as much contents coverage as you need.  A lot of these policies assume a percentage of the value of your house as your contents, sometimes 20 to 30%, which could easily be $250,000 of contents on a $1M home.  Some of you may have accumulated that much stuff but I have a feeling most people on here have not.  For the most part, your clothes and electronics and personal effects are all worthless.  High-value items like jewelry, firearms, furs, artwork, gold coins, etc. are usually not going to be fully covered by your policy even if they are under the contents coverage amount, so you may be misled into thinking that big contents cap will help you out.

              Finally, already covered in this thread, don't insure for more than the cost of the rebuild.  The land should, in theory, still be there and retain its value after the whole thing burns down.  Any extra coverage is likely just wasted premium, and if you're worried about future increases in cost to rebuild, you can always bump your coverage as the years go by.