Americans fixate on bigger. Larger cars, larger televisions, even larger morning coffees. Houses are no different. When it comes to home sizes, the average square footage of a home in the U.S. has grown from 1,660 square feet in 1973 to 2,392 square feet in 2010, according to the U.S. Census Bureau. That’s a 44% increase in fewer than 40 years.
But bigger isn’t always better. When it comes to the size of your home, fewer square feet can mean a smaller portion of your bank account going toward every day bill payments: homeowners insurance premiums, being one.
I get a lot of questions from blog readers about the association between home size and insurance coverage so I’ll outline three important parts of your insurance policy that are impacted by your home size.
This is the part of your homeowners insurance policy that covers the physical structure of your home in case it is damaged or destroyed by covered events such as fire, hail and wind. You should always make sure you have enough dwelling coverage to rebuild your home from the ground up. This is heavily dependent on local construction costs, so it will vary from location to location. For some average building costs check out the National Association of Home Builder’s report on the Cost of Building a Home.
The best way to determine the amount of coverage you need is to use a dwelling coverage calculation- which is how your agent calculates it as well. A dwelling coverage calculator like this one uses the square footage of your home and its ZIP code to figure out the replacement value of your home. The more square footage you have to rebuild, the more it will cost. Increasing the square footage increases the amount of coverage you need, which is the single greatest impact on what you pay for your policy.
This protects sheds, detached garages, and fences, among other structures on your property. Typically, smaller homes are placed on smaller lots, which could limit the amount of space you have for other buildings. Coverage limits typically are set at 10% of the amount of your dwelling coverage. For example, if the dwelling coverage limit for your home is $200,000, your other structures limit would be $20,000. How does it affect your premium? Lower coverage limits will have a smaller impact on your payments by trimming off some of the protection that you don’t need or use.
Contents/personal possessions replacement:
This protects the contents of your home, from electronics to furniture to clothing. One side effect of having a smaller home is that you generally have less “stuff” in it. Keeping a small space clutter free can help you trim the amount of coverage you need for your possessions. Again, the limit for this type of coverage is a percentage of your dwelling coverage limit – usually somewhere from 50% to 70% according to the Insurance Information Institute (III). And again, the lower this figure, the less it will affect your premiums.
Insurance savings add another check mark in the pro column for buying a smaller home, but certainly there are more benefits as well. There’s less house to heat and cool, which translates to savings on electricity. There’s less house to clean, which makes for better quality of life. You’ll likely owe less, and you’ll be leaving a smaller carbon footprint.
When it comes to the big picture, living small makes plenty of sense. Check out another recent Yahoo! Voices article by Debi Rideout for more small living tips.