How Much Home Insurance Do I Need?

Rebuilding cost sets the dwelling limit

Home insurance is sized to the cost of rebuilding your house, not to what the house would sell for and not to what you still owe the bank. Rebuilding cost is called replacement cost, and the dwelling limit on a Texas homeowners policy is supposed to match it.

Market value carries the land, the location and whatever the neighborhood is doing. Replacement cost carries none of that. A lot in a sought-after school zone can account for a large share of a home’s sale price and contributes nothing to what a builder charges to frame, wire and roof the same square footage again.

A low dwelling limit costs money long before a total loss. A dwelling limit below what the policy form requires can cut the settlement on a kitchen fire.

How a replacement cost figure gets built

Replacement cost comes out of a construction estimate, not an appraisal and not a county tax statement. An insurer runs square footage, exterior wall type, roof covering, foundation, number of stories and interior finish through a cost estimator loaded with current local labor and material pricing.

The estimator reads four details off the house itself:

• Square footage under the main roof, measured from the outside walls
• Finish level in the kitchen and bathrooms, where custom work hides
• Roof covering and pitch, since a steep composition roof and a low-slope roof cost nothing alike
• Anything current building code would force on a rebuild that the original construction never had

An extended replacement cost endorsement sits above the dwelling limit for the case where the estimate came in low.

What the other limits on the policy are sized to

A Texas homeowners policy carries five limits, and only the dwelling limit comes from a construction estimate. The other four are written as a share of that limit or chosen outright.

• Other structures covers the detached garage, the fence and the shed, written as a share of the dwelling limit
• Personal property covers the contents of the house, also a share of the dwelling limit unless you raise it
• Loss of use pays rent, meals and storage while the house is uninhabitable
• Personal liability covers injury or damage you cause to someone else, anywhere, and has nothing to do with the building

Contents is the limit owners discover too late. Replacing everything inside a house is an inventory problem rather than an estimate problem, and the guess people make is low.

The Texas version

Texas homeowners forms condition full replacement cost settlement on insuring the dwelling to a stated share of its replacement cost. The Texas Department of Insurance home insurance guide puts that share at 80% of replacement cost at most companies and 100% at some, and insuring below it settles a partial claim for less than full replacement cost.

Roof settlement is the second Texas item to read for. A policy can settle an older roof at actual cash value instead of replacement cost, and the same guide explains the difference between the two terms.

Wind and hail carries its own deductible across much of Texas, usually written as a share of the dwelling limit rather than as a flat amount, so raising the dwelling limit raises that deductible with it.

Aulona Insurance Group places the coverage this question is about: Texas Home Insurance.

What each limit on a Texas homeowners policy is set from

Limits on a homeowners policy come from four different places, and mixing them up is how a house ends up underinsured.

Limit	What it pays for	Where the number comes from
Dwelling	Rebuilding the house	A construction cost estimate
Other structures	Garage, fence, shed	A share of the dwelling limit
Personal property	Contents	A share of the dwelling limit, raised by choice
Loss of use	Rent and meals while displaced	A share of the dwelling limit, or a time cap
Personal liability	Injury you cause others	Chosen outright, then extended by an umbrella

Nothing in the table comes from your mortgage balance. A lender can require enough coverage to protect its loan, and a loan balance is still not a dwelling limit.

The liability layer above the homeowners policy

Personal liability on a homeowners policy stops at its limit, and a Texas judgment does not. Excess liability, sold as an umbrella, sits above both the homeowners liability limit and the auto liability limit, and begins paying where the underlying policy stops.

Aulona Insurance Group places personal umbrella coverage above the home and auto liability limits.

Three household facts usually decide whether that layer is worth carrying:

• Assets and future earnings a plaintiff can reach after a judgment
• A teenage driver, a pool, a trampoline or a dog on the property
• A rental house, a boat, or a room rented out short term

An umbrella requires underlying limits at or above what the excess insurer sets, so the auto and homeowners liability limits usually have to come up first.

What to have ready before you ask an agent

Pull your current declarations page first. Every limit on the policy is printed there, and no agent can judge the dwelling limit without seeing the one you already carry.

Have these in front of you:

• The declarations page, showing dwelling, other structures, contents, loss of use and liability limits
• Square footage, year built, number of stories and foundation type
• Roof age, roof covering and the date of the last replacement
• Any remodel finished since the policy was written, and what it cost

The remodel is the item owners forget. A kitchen rebuilt three years ago raises replacement cost, and the insurer does not know about it unless somebody says so.

The construction details above are what an insurer prices the dwelling limit from, and Aulona Insurance Group takes a Texas home to an insurer only after a recorded call with Luka Cenaj.