Some thoughts on Homeowners’ Insurance

Let’s talk about your homeowners’ insurance for a moment. Insurance companies are competing for your business when you call and ask for a quote.  The price is an important factor to most consumers so, in order to win your business, they often underinsure people to keep the price low.  We are in a high cost area for construction. If there is a big event where many people have a loss, rebuilding costs will be even higher.  Another factor is that the finishes in our area are often high end and your coverage needs to reflect that or you will be underinsured.
My rule of thumb is $450/square foot for finished space plus about $200/square foot for garage or other unfinished space.  When you are getting quotes, ask for them to adjust the coverage up so you can compare apples to apples.  For me, this does not include the 150% “replacement cost” guarantee.  I recommend you have this as your base coverage.  This number will still be less than you are paying for the home, because the cost of the home includes the underlying real estate, which presumably in almost all cases will still remain even if something catastrophic happens to the house itself.

This number may be a little high, but the majority of home owners forget to adjust the coverage for years and years as the replacement cost is gradually increasing due to inflation, so being a little too high at the outset is not a bad idea.

If you are buying a condo, your building has coverage at least for the structure.  In some smaller condos (usually 3 units or less), sometimes the “contents” or “walls in” coverage is included.  In most, however, only the exterior and shell of the condo itself are covered but the HOA policy.  In these cases, your lender (and common sense) will require that you get a “walls in” or HO-6 policy.

For your walls in coverage, you are trying to have enough coverage to replace all the fixtures, cabinets, appliances and personal property.  So if we start with an empty shell, it would cost about $150k to build the entire interior of a 2 bed/2 bath unit.  Adjust accordingly from there with your insurance agent and please ask me for feedback.  Then there is all your stuff.  And remember, this is not what it would cost to buy it at a garage sale – this is what it would cost to actually replace all your clothes, everything.

A couple of other thoughts:

– Having a high deductible can be a way to afford more coverage at a lower premium. Are you really going to deal with the insurance claim process for something that costs less than $5,000? $3500?  We all have our own tolerance. 

– Obtaining a “personal umbrella policy” can be a good choice to get extended liability coverage over your cars and property.  They are generally less than $400 a year and can be a good thing to have. 

– If this is a tenant occupied property, make sure your policy has “personal injury” coverage.  This covers things like wrongful eviction. You may not be planning on evicting anyone (and you certainly wouldn’t do it wrongfully!) but that doesn’t mean you won’t be glad you had the coverage at some point later. 

If you already have your insurance all set for this purchase, you can adjust the coverage after close of escrow. If you do it now it will be one less thing to worry about.

A couple of suggestions, if you do not already have your own insurance company, are as follows:

Toni Pozos with State Farm

Ken Stewart with State Farm

Steven Klein with Greystone Insurance


I would love to discuss and/or review your quotes when you get them.