What Percentage Should You Carry in Home Insurance?

There are many somewhat hidden rules when it comes to home insurance, especially with how much you should carry. One of these rules is the 80% rule in home insurance. You should generally carry at least 80% of your home’s total replacement cost value in home insurance. a large lawn in front of a house

What is Total Replacement Cost Value in Home Insurance?

The total replacement cost value of your home is how much it would cost to completely rebuild your home after a disaster, including building and material costs. This accounts for the value of your home per square foot along with amenities and permanent fixtures.

You can have your home’s total replacement cost value evaluated by a professional as well as using online calculators.

Once you know your home’s total replacement cost value, you should carry at least 80% of that value in home insurance—although 100% is recommended.

What if You Carry Less Than 80% in Home Insurance?

Carrying less than 80% of the total replacement cost value of your home in home insurance can leave gaps in your coverage. This is because home insurance claims aren’t only built on how much coverage you have, but how much coverage you have compared to how much you should have. If you have less than 80%, the compensation you will receive will be calculated based on the 80% value.

For example, say your home’s total replacement cost value is $500,000. You carry $300,000 in home insurance, which is 60% of your home’s total replacement cost value. A bad storm causes $50,000 in damage to your home. Since $50,000 is significantly less than $300,000, you may think that you are completely covered. Unfortunately, this isn’t the case.

Instead, your compensation will be calculated based on how much you should have carried. With a total replacement cost value of $500,000, you should be carrying $400,000, which is 80%. Since you are instead carrying $300,000, your compensation will be calculated by the amount you are carrying ($300,000) divided by the amount you should have been carrying ($400,000), which is 75%. This means 75% of the damages will be covered.

In this case, 75% of $50,000 is $37,500. This means that insurance will cover $37,500 while the remaining $12,500 will have to come out of your own pocket.

Speak with your insurance agent if you need help insuring your home for its total replacement cost value.

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