Is it necessary to insure my house for more than it's worth?

Dwelling replacement cost considers factors like square feet, building materials, number of bathrooms and bedrooms, kitchen upgrades, foundation and special features. Confirm the insurer has accurate information on these and other elements of your home that affect replacement cost. Your homeowners insurance agent can help you determine the accurate replacement cost of your home.

Traditional homeowners insurance policies are dwelling replacement cost contracts. This means the claim settlement for a partial loss (wind ripping siding, hail denting roof shingles, etc.) is based on repairing damages. Depreciation is not a factor. A total loss cannot exceed the dwelling limit unless the policy includes guaranteed or extended replacement cost coverage.

It is best to insure your home for 100-percent of its replacement cost. However, policyholders are often allowed to insure the dwelling for 80-percent of its replacement cost. Check the policy's co-insurance requirement to confirm the minimum amount of coverage necessary on your home. Insuring for less than this figure is a problem if there is a loss. A claim payout will be reduced based on the dwelling limit the policy has versus the dwelling limit you should have had.