For Homeowners, you generally have three options to choose from when deciding how much dwelling coverage you need, and each of these options provides a different level of coverage for your home:
Actual Cash Value — Pays for the cost to replace damaged property while factoring in depreciation amounts. For home insurance policies, Actual Cash Value applies unless a policy states that Replacement Cost or Guaranteed Replacement Cost has been chosen.
Replacement Cost — Pays for the cost to replace damaged property without factoring in deductions for depreciation, but payment is limited to a maximum dollar amount.
Guaranteed Replacement Cost — Pays the full cost of replacing damaged property, with no deduction for depreciation and no dollar limit. Guaranteed Replacement Cost is not available in all states, and most companies limit the coverage to 120 percent of the cost to rebuild your home. Allowing for this amount protects you in cases of increased construction costs or other building-related fees due to inflation.
You can determine a rough estimate of what it would cost to rebuild your home by following this equation:
Local building costs per square foot x Total square footage of your home = Cost to rebuild your home.
For Auto Insurance you need to cover a limit of liability that is comparable to your level of asset base. Your limits will typically be set at a limit Per Person, ranging from a minimum of $15,000 up to $250,000 and a limit Per Accident of $30,000 ranging up to $500,000. If you desire limits in excess of these limits then you usually would add an Umbrella of $1,000,000 to $5,000,000.