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How Much Homeowners Insurance Do You Need?

The amount of home insurance you need depends on many factors, including the size and value of your house.

Updated November 30, 2022

Reading time: 9 minutes

Why you can trust Insurify: As an independent agent and insurance comparison website, Insurify makes money through commissions from insurance companies. However, our expert insurance writers and editors operate independently of our insurance partners. Learn more.

Your home is a valuable asset that plays a major role in building wealth. One of the best ways to protect your investment in your home and the personal property you store there is to have adequate homeowners insurance coverage.

Although neither state nor federal laws mandate that you carry homeowners insurance, mortgage companies typically require it. And forgoing insurance on a home you own outright puts you at risk of suffering a complete loss in the event of a fire or other catastrophic event.

How to calculate how much homeowners insurance you need

How much insurance you need depends on many factors, including the value of your home, belongings, and other assets. Experts have established guidelines to help you determine how much is enough for your situation.

1. Calculate the value of assets to protect with liability insurance coverage

Your home insurance’s liability coverage protects your assets in the event you’re sued because of an injury you, a family member, or a pet causes to another individual, or damage you, a family member, or a pet causes to someone else’s property.

The typical homeowners policy provides $100,000 in liability coverage, according to the Insurance Information Institute. If the total value of your assets is higher than that, you risk having to pay a judgment out of pocket.


Say you have investment accounts worth $200,000, and you lose a lawsuit for $200,000. If you only have $100,000 in liability coverage, you’ll have to use half your savings to cover the rest of the judgment.

Insurance companies offer “excess liability” coverage, also called umbrella coverage, that expands the standard coverage homeowners insurance policies provide.

Learn More: How Much Does an Umbrella Policy Cost?

2. Calculate the cost to rebuild your home

In a worst-case scenario, where your home was a total loss, your ability to rebuild would depend on having enough insurance for the structure. Determining how much replacement cost home insurance you need requires estimating how much it would cost to rebuild your home.

The Insurance Information Institute recommends contacting a local real estate agent, home builder association, or insurance agent to find out the average price per square foot to build a home similar to yours in terms of size, style, special features, and materials used. Multiply that figure by your home’s square footage for a base coverage limit.

Also, consider whether you need a “modified replacement cost” policy that covers the cost of rebuilding an older home to current building standards and codes. If that’s not possible, State Farm recommends that you make sure your coverage will, at the very least, provide you with enough money to build a home of acceptable size and quality.

Remember to include the cost of rebuilding a garage or other structures on your property.

Helpful Tool: Homeowners Insurance Replacement Cost Calculator

3. Inventory your personal property

It’s a good idea to go through your home and make a list of all the belongings you would want to replace if they were damaged or destroyed in a covered loss. As you add items to the list, make a note of when you purchased them, jot down the serial or model numbers, and estimate how much each item is worth, Farmers Insurance advises.


While estimating value, consider both the depreciated value and replacement value, which is how much it would cost to buy the item new. Tally up both values to find the actual cash value and replacement value of your belongings.

4. Compare depreciated value vs. replacement value

Homeowners insurance usually limits personal property coverage to 50% to 70% of your dwelling coverage, according to the Insurance Information Institute, so see how each value compares. Then decide whether you’d prefer to be reimbursed for the actual, depreciated value or the full replacement value. Full replacement cost coverage costs slightly more but offers much more protection.

Keep in mind that homeowners insurance typically limits coverage for valuables such as jewelry, electronics, and collectibles. You might need to add an endorsement to your homeowners policy for better coverage of these items.

Check Out: Actual Cash Value vs. Replacement Cost: Which Is Best?

5. Calculate your regular living expenses

Homeowners insurance policies include additional living expenses, or loss of use, coverage that pays for food, housing, and other necessary expenses you incur if you’re displaced from your home while it’s being repaired or rebuilt after covered damages. It also reimburses you for lost rent if you rent the home to a tenant who’s displaced.

In most cases, homeowners insurance provides additional living expenses coverage totaling 10% to 30% of your dwelling limit, depending on the kind of policy you have, according to the International Risk Management Institute. Compare your anticipated expenses to those limits.

6. Determine whether you need flood insurance

Homeowners insurance doesn’t cover flood damage, but you can purchase flood insurance separately. If you live in a known flood zone, your mortgage company will likely require you to buy this type of coverage.

Learn More: Flood Insurance Coverage: What It Includes and What It Doesn’t

Types of homeowners insurance policies

Generally, insurance companies sell eight different types of homeowners insurance. The difference between one form and another is the type of home it insures and the perils it covers.

HO-1: Basic form

Basic form policies are “named coverage” policies that cover your dwelling and personal property only for the 10 specific perils named in the policy. In this case, the perils include fire and lightning, explosions, smoke, windstorms and hail, riots and civil commotion, aircraft, vehicles, theft, and volcanic action, according to the International Risk Management Institute.

Because of its limitations, basic form insurance is unavailable in most states.

HO-2: Broad form

Broad form insurance covers liability as well as additional perils beyond those covered by the basic form. In addition to the 10 perils HO-1 policies cover, HO-2 insurance covers property damage from falling objects; the weight of snow, ice, or sleet; several different types of damage from plumbing, HVAC, or fire sprinkler systems; and damage from the accidental discharge of electrical current.

HO-3: Special form

Special form policies cover structures for all risks except those that the policies specifically exclude. Exclusions include damage from earthquakes, war, nuclear accident, landslide, mudslides, and sinkholes, according to the Insurance Information Institute.

HO-3 policies provide named perils coverage for personal property. It’s the most popular type of homeowners insurance.

Check Out: Named Perils Home Insurance Policies: The 16 Named Perils and Choosing the Perfect Policy

HO-4: Contents broad form

Contents broad form insurance is renters insurance for the contents of the home but not the structure. It’s a named perils policy, meaning it only covers the perils specifically named in the policy. The named perils typically include the same perils covered by HO-2 policies. Renters also receive liability and medical payments coverage from HO-4 insurance.

Good to Know: Your landlord’s insurance will be responsible for covering any damage to the structure of your rented home in case of a covered event. But it won’t protect your personal property inside the home. You’ll need renters insurance for that.

HO-5: Comprehensive form

Comprehensive form insurance is the most expansive homeowners insurance. Whereas HO-3 policies only provide named-perils coverage for personal property, HO-5 policies provide all-risk, or “open perils,” coverage to both personal property and structures.

HO-6: Policy unit owners form

Policy unit owners form is for condos and co-ops. In addition to providing liability and medical payments coverage, HO-6 policies cover personal property and portions of the structure owned by the homeowner rather than the condo or co-op association — ceilings, floors, and walls, for example. It serves as an adjunct to the master policy the condo or co-op association purchases to cover the common areas.

Learn More: How to Find Cheap Condo Insurance

HO-7: Mobile home form

Mobile home insurance is homeowners insurance designed especially for mobile and manufactured homes. You can purchase it as a stand-alone mobile home policy or as an endorsement to a standard homeowners insurance policy, according to the International Risk Management Institute.

HO-8: Modified coverage form

When an older home is damaged or destroyed, the cost of repair can exceed the home’s value. An HO-8 policy provides basic coverage in such cases. It’s similar to HO-1 insurance.

Here’s a look at different types of insurance and what they cover:

Insurance TypeFire/LightningTheftWeight of Ice/Snow

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What is not covered by homeowners insurance

Depending on the type of insurance you buy, you can get coverage for most common perils with a standard homeowners policy. However, even HO-5 comprehensive policies have exclusions. You might be able to cover some excluded perils by purchasing additional insurance.


Although standard homeowners insurance policies cover some perils, such as fire, that result from an earthquake, they don’t cover damage from the earthquake itself. If you’re in a vulnerable area, such as California or Oklahoma, you can purchase earthquake insurance to cover that damage. The coverage is often available as an endorsement to your standard policy.

Read More: Earthquake Insurance Cost: Everything You Need to Know


Homeowners insurance doesn’t cover floods, even with an endorsement. For that coverage you must purchase separate flood insurance through the National Flood Insurance Program or a private insurer. The Federal Emergency Management Agency manages the program, which makes coverage available to homeowners in NFIP communities. If your home is in a high-risk area and you have a government-backed mortgage loan, your lender will require you to have it.

Maintenance issues

Your homeowners insurance policy is meant to cover losses resulting from sudden, unexpected events. Damage resulting from normal wear and tear or deferred maintenance is not covered. For example, an HO-5 policy would cover damage to your refrigerator caused by a sudden, unexpected electrical surge during a lightning storm. It would not cover damage resulting from a worn-out part or dust-clogged coils and vents. You may consider a home warranty if you’re concerned about repairs for normal wear and tear.

Check Out: Do I Need Home Repair Insurance?


Your flood insurance might cover mudflows if water seepage caused them. But homeowners insurance doesn’t cover mudslides, according to the Insurance Information Institute.


Standard insurance policies exclude landslides just as they exclude earthquakes — both are earth-movement perils. But as with earthquakes, you can purchase separate insurance to cover landslide damage.

A sinkhole is also an earth-movement peril excluded from standard policies. However, some states require insurance companies to offer sinkhole insurance as an optional coverage.


Homeowners insurance rarely covers acts of war, which are a separate category from terrorism. Certain policies may cover terrorism.

Nuclear accident

Nuclear events are considered fundamentally uninsurable, according to the Insurance Information Institute. Standard policies don’t cover them, and it might not be available at all in the private insurance market.

How to find cheap homeowners insurance

The best way to find affordable homeowners insurance is to compare policies and prices from several different insurers. But keep in mind that a cheap policy won’t necessarily save you money if it leaves you underinsured. By looking at both coverage and prices, you stand a better chance of finding inexpensive coverage that’s also a good value.

Another way to save is to use the same insurance company for all your policies. Many insurance companies give bundle discounts to customers who use them for both homeowners and car insurance, for example. You could save as much as 20%, according to the International Risk Management Institute.

Reducing your deductible can also keep your insurance premium affordable. The less the insurance company has to pay if you file a claim, the lower the premium you’ll pay. Just remember that a high deductible means you’ll have higher out-of-pocket costs. Be sure to limit your deductible to an amount you can afford to pay yourself if you file a claim.

Installing security devices can save you as much as 20%, the International Risk Management Institute says. A burglar alarm with a sign announcing that you have one installed reduces the risk of a break-in. Lower risk to the insurer means a lower homeowners insurance premium for you.

Maintaining a good credit score — or improving your score if you’ve had credit problems in the past — is the key to achieving a good insurance score. Your insurance score is a credit-based score that insurance companies use to determine your risk of filing a claim. A high score correlates with low risk, so you pay less for your coverage.

Learn More: How to Find Your Home’s Protection Class and ISO Ratings

Homeowners insurance FAQs

  • There’s no one answer for how much homeowners insurance should cost because insurance companies weigh many variables when they set your rates. But the average homeowner pays $1,272 per year for HO-3 homeowners insurance, according to data from the National Association of Insurance Commissioners.

  • Homeowners insurance covers water damage not caused by flood or by seepage from the basement. An HO-3 policy, for example, generally covers damage from burst pipes due to freezing; accidental discharge or overflow of water from a plumbing, HVAC, or automatic sprinkler system; and sudden release from a steam or hot water heating system, A/C, or sprinkler system.

  • You’ll need separate coverage or special coverage on your homeowners insurance policy if your home is in an area prone to flooding or earthquakes. An older home, or a home where you keep valuable jewelry and other personal property with low coverage limits, might also warrant special coverage. Your insurance agent can advise you based on your specific needs.

  • The best way for most people to shop for homeowners insurance is online because that’s the easiest way to request price quotes and review coverages offered by a number of different insurance companies.

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Daria Kelly Uhlig
Daria Kelly Uhlig

Daria Uhlig is a freelance writer and editor with over a decade of experience creating personal finance content. Her work appears on USA Today, Nasdaq, MSN, Yahoo Finance, Fox Business, GOBankingRates and AOL. As a licensed Realtor and resort property manager, she specializes in real estate topics, including landlord, homeowners and renters insurance. In her spare time, Daria can be found photographing people and places on Maryland's Eastern Shore. Connect with her on LinkedIn.