The next step in calculating how much coverage you need is to figure out how much it would cost to rebuild your home if it's totally destroyed by some disaster.
"Many homeowners think of market value when they purchase insurance, but what you should consider are reconstruction costs," Robert Buckel, a vice president and product manager for Erie Insurance, explains via email.
Bach says that replacement cost is an especially crucial consideration if you live in a part of the country where wildfires sometimes happen, or where there are hurricanes and flooding — the sort of natural disasters that often turn a house into a total loss, rather than just damaging it. For example, if you live in California, where giant blazes seem to threaten neighborhoods with frightening frequency these days, "it's important to insure your home to full value," she cautions.
Calculating that replacement cost can be tricky, according to the Insurance Information Institute, because what you paid for your home — or how much it is worth on the market now — doesn't necessarily reflect what it would cost to rebuild it from scratch.
One rough formula for calculating that cost is to take the total square footage of your home and multiply it by what local construction contractors charge on a per-square-foot basis. You can get that last piece of information from a local real estate agent or builders' association, or else from your insurance agent, according to the Insurance Information Institute.
But to get a more precise idea, the Insurance Information Institute says you may need to factor in other variables as well, such as whether your house is wood frame or masonry, whether it followed a standard plan or was custom construction, and whether you've added improvements, such as an additional bathroom or a fancy kitchen renovation. And if you've got an older home, it may have some features, such as vintage wall and ceiling moldings and carvings that would cost a lot of money to re-create.
"Insurance companies may give an estimate, but prices could differ in your particular area or after a catastrophe due to demand surge," Janet Ruiz, the Insurance Information Institute's director for strategic communication, adds in an email. "Check with a local builder to find out what the going rate is per square foot for a similar quality home. Include any specialty types of materials you may have in your home."
"Finally, think about the unique attributes of your home — for example, you may want extra liability insurance for a pool in the backyard, or water back up coverage if you have a basement," Angi Orbann, vice president of property for personal insurance at Travelers Insurance, says via email.