How much insurance do I need?

[Charlotte Edwards]

The purchase price of our house (in Illinois) is $68k and one of the insurance agents I got quotes from (still waiting on the other) gave a quote actual cash value (56,000 being the coverage amount) for $300/year, but when I asked for replacement cost coverage, they did coverage for 201,000 which is $900/year.

From reading through past posts, I am quite sure I want the replacement cost, but do I need 200k in coverage? My realtor said that she pays about $500/year/house for insurance, which is why I think this quote of $900 is out of line.

Thanks for any insight you can give on this being reasonable or not.

[Michael Norris]

Replacement Cost has nothing to do with market value - there is no relation of the two. On Replacement Cost estimate the insurance company is trying to calculate how much they think it will cost to rebuild the property if it is completely destroyed. A $1 million dollar house in California may only cost $200k to rebuild just like a $5000 house in a bad part of town could cost $200k to rebuild. Not to pick on your Realtor but what he/she pays for their primary homeowners policy has nothing to do with what you will pay for a Landlord Policy and they should know that.

You didn't mention the deductible or what level of Liability coverage was quoted nor if you added on coverage for Loss of Rent, Sewer & Drain backup, or Landlord Personal Property. All of these are important to your over all policy package.

A great price with terrible coverage is NOT a good thing!

Typically Replacement Cost coverage breaks down to a dollars per square foot calculation for the size, type of construction, and location of the property. I don't know where your property is in Illinois but assuming it's a metro area and they are using something like $130 per square foot then your property is about 1500 square feet?

If so $900 a year for $200k landlord policy with Replacement Cost coverage does not sound out of line assuming you have some of the other coverage lines I put in above and a decent amount of liability coverage.

Talk to your agent - if they can't break down the info and explain it understandable terms find a new agent. Good luck!