The intent of homeowners insurance is a form of protection of your dwelling and personal items from total disaster and loss. Anyone who has ever gotten a mortgage knows that presenting proof of homeowners insurance is one the requirements at closing. The borrower is at the very least required to purchase insurance for the value of the mortgage loan.
Nevertheless, you cannot make a decision as to how much homeowners insurance you are going to need simply based on the amount of the mortgage. You are going to need insurance that is adequate enough to protect you, your family and your possessions.
Should your home be totally destroyed, you are going to have to rebuild it or get a comparable home. Your insurance should provide enough coverage so that you will be able to replace your current home with a comparable home if something should happen to it. According to the Insurance Institute, you should find out the average cost per square foot to build a house in the area where you live, then multiply the cost by the square footage of your current dwelling. You now have an estimate of the minimum insurance you are going to need on your home.
However, if something calamitous should happen to your house, it is likely that you will lose all your personal belongings. In these trying times, there are not too many ordinary people who have enough cash in their bank accounts to be able to go out and buy new items to replace what was lost. You need to decide whether you want insurance that will pay you the actual value of the item (depreciation is taken into account), or whether you want replacement cost insurance. Replacement cost insurance is more expensive, but it comes with the peace of mind of knowing everything can be replaced if it should be lost. You would have to decide whether paying extra is worth it or if you can deal with getting actual value.
If you have luxury items, standard homeowners insurance policies come with limits as to how much will be paid out for things considered high-end. These items include fur coats, collections, jewelry or anything else that is unique and expensive. In this case, you might want to consider purchasing endorsement or floater insurance that covers those unique and nearly irreplaceable items.
Once you have taken everything into account, you will have a good idea of how much insurance you are going to need to fully cover yourself from calamitous events. You can call an insurance company and they will more than likely come out, make an inspection and give you an estimate on homeowners insurance. Since you have already taken the time out to make a determination, you will know whether the insurance company is being ethical with you.
If you feel they are offering too little or too much, you can always contact another insurance company. You will have the advantage of already knowing how much insurance you need. It is good practice to get several estimates anyway, so that you do not end up with too little or too much insurance.