How Much Homeowners Insurance Do You Need?

The amount of homeowners insurance you need depends on how much it would cost to rebuild it, how many assets you want to protect, and your risk tolerance.

Jacqueline DeMarco
Jacqueline DeMarco
  • 13+ years writing insurance and personal finance content

  • Insurance, lending, and retirement expert

Jacqueline has contributed content, and her personal finance passion, to dozens of noteworthy financial brands, including Credit Karma, Bankrate, and MagnifyMoney.

Featured in

media logomedia logo
Courtney Mikulski
Courtney MikulskiSenior Editor, Auto
  • 3+ years producing insurance and personal finance content

  • Main architect of the Insurify Quality Score

Courtney’s deep personal finance knowledge extends beyond insurance to credit cards, consumer lending, and banking. She thrives on creating actionable content.

Featured in

media logomedia logo
Mark Friedlander
Reviewed byMark Friedlander
Mark Friedlander
Mark FriedlanderDirector, Corporate Communications, Triple-I
  • Corporate communications director for Insurance Information Institute

  • 20+ years in insurance and communications

As Director, Corporate Communications for Triple-I, Mark serves as the non-profit’s national spokesperson, sharing information and education on a wide array of insurance issues.

Updated January 1, 2024

Why you can trust Insurify: Comparing accurate insurance quotes should never put you at risk of spam. We earn an agent commission only if you buy a policy based on our quotes. Our editorial team follows a rigorous set of editorial standards and operates independently from our insurance partners. Learn more.

When you buy a home, it becomes an investment that you need to safeguard against various situations and damages. Your mortgage lender wants you to safeguard it too. While having homeowners insurance isn’t a legal requirement, most mortgage lenders require borrowers to have a home insurance policy that protects both parties’ interests.

However, you need to calculate exactly how much home insurance you need. You don’t want to overpay for bloated coverages, but you also don’t want to be vulnerable to disasters and damage to your home. Here’s how to figure out how much homeowners insurance you need.

Quick Facts
  • The cost of labor and building materials plays a role in how much home insurance you should get.

  • Homeowners typically need at least $100,000 in personal liability coverage.

  • Having an updated home inventory list can help you calculate how much homeowners insurance you need for your personal belongings.

How to calculate how much home insurance you need

Calculating replacement cost is a complex process. The Insurance Information Institute (Triple-I) recommends working with your insurance agent or carrier to determine the current level of replacement cost coverage you need. You can use a home insurance calculator to help you estimate how much you need, but it’s also important to follow these steps:

1. Understand each coverage type

2. Get an estimate for dwelling coverage

3. Decide if other structures coverage is necessary

4. Create a home inventory list

5. Protect your finances with personal liability coverage

Compare Top Home Insurance Companies

Get personalized home insurance quotes in minutes

Secure. Free. Easy-to-use.
Based on 3,806+ reviews
4.8/5
Shopper Approved
ProgressiveLiberty MutualAllstate

1. Understand each coverage type

Having a standard homeowners insurance policy is a great start when it comes to protecting your finances and home, but you may need to extend your coverage at times. This is what you need to know about different coverage types so you can secure the right amount of homeowners insurance.[1] [2]

Coverage TypeMinimum CoverageHow Much You NeedOptimal coverage
Dwelling coverageYour mortgage lender’s minimum requirementsEnough coverage to rebuild or repair your home to its original condition, based on current costs of construction materials and labor in your areaExtended replacement cost to rebuild your home to its original condition at current market rates
Other structuresYour mortgage lender’s minimum requirementsEnough coverage to rebuild or repair your other structures, such as detached garages, swimming pools, sheds, and gazebos, to their original conditionExtended replacement cost to rebuild any structures to their original condition at current market rates
Loss of use coverageYour mortgage lender’s minimum requirementsEnough to temporarily house and feed your family comfortablyEnough to house and feed your family comfortably for an extended period
Personal property50% to 70% of your dwelling coverage limitEnough to replace important personal belongingsEnough to cover your full home inventory
Personal liability$100,000$300,000 to $500,000An excess liability or umbrella policy for personal liability protection above the liability limit in a standard homeowners policy
Medical payments$100,000$300,000 to $500,000An excess liability or umbrella policy for personal liability protection above the liability limit in a standard homeowners policy

2. Get an estimate for dwelling coverage

Dwelling coverage protects your home’s structure from various perils; if events like fire, storms, or vandalism damage your home, dwelling coverage pays for repairs and rebuilding.

The coverage extends not just to your house but also to connected structures, like garages, other structures like a detached garage, swimming pool, or gazebo, and even fixtures within your home. Figuring out how much dwelling coverage you need requires considering multiple factors.

First, the cost of building materials significantly affects the replacement cost of your house; high-end materials lead to greater expenses. Labor costs in your area also play a crucial role — areas with higher labor costs generally require more coverage to meet the expense. Also consider the age of your home, its square footage, and any unique features it has.[1]

Replacement cost vs. actual cash value

Replacement cost and actual cash value are two methods you can choose between for reimbursement from your home insurer.

Replacement cost covers the expense of rebuilding or repairing your home at current market prices, regardless of its depreciated value. On the other hand, actual cash value factors in depreciation, meaning you receive the current value of your home minus depreciation.

Keep in Mind

When determining dwelling coverage, choosing replacement cost ensures your policy covers the full cost of rebuilding your home, making it the better choice for protection against market fluctuations and rising construction costs.[3]

Guaranteed replacement cost

Guaranteed replacement cost is a robust policy feature that goes beyond standard coverage. With this option, your home insurance company covers the entire cost of rebuilding your home, even if it surpasses the policy limit. It provides a safety net, bridging the gap between your policy’s limit and the actual reconstruction expenses.

This feature is especially helpful in areas prone to natural disasters or where building materials and labor costs fluctuate. Having guaranteed replacement cost coverage ensures you can rebuild your home to its pre-loss condition without financial strain.

Extended replacement cost coverage

Extended replacement cost coverage offers additional protection above your policy limit. In the event of a disaster, this coverage provides extra protection, typically 20% to 25% more than your policy’s limit. This extension really comes to the rescue when construction and labor demands and costs suddenly surge after a widespread catastrophe.

Let’s say a hurricane damages your $350,000 home, and because everyone else in the area is rebuilding, a construction company says it’s $400,000 to rebuild your home. With extended replacement cost coverage, your policy limits can cover that extra $50,000 so you don’t have to pay it out of pocket.

Compare Top Home Insurance Companies

See personalized quotes from top home insurers in minutes

Secure. Free. Easy-to-use.
Based on 3,806+ reviews
4.8/5
Shopper Approved
ProgressiveLiberty MutualAllstate

3. Decide if other structures coverage is necessary

Whether other structures coverage is necessary depends on your specific needs as a homeowner. This coverage applies structures apart from your main dwelling, like a detached garage, shed, or barn. It covers these structures against perils such as fire, vandalism, and storms. However, it typically doesn’t cover land, fences, or outdoor fixtures.

To calculate the needed coverage, assess the replacement cost of each structure. For example, if you own a shed valued at $5,000 but rebuilding it costs $7,500, you should base your coverage on the higher amount. Underinsuring could mean paying the difference out of pocket in the event of a total loss.

Loss of use coverage

Loss of use coverage, commonly known as "additional living expense coverage," kicks in when your home becomes uninhabitable due to a covered peril. Loss of use coverage is typically 20% to 30% of your policy's dwelling coverage limit, and covers temporary living expenses, including hotel bills, meals, and other incurred costs, while your home is repaired or rebuilt. However, it usually doesn’t cover luxurious living expenses beyond your normal standard.

This coverage is vital for your financial and personal well-being, as it prevents additional financial burdens during a crisis and gives your family the resources they need to live comfortably and safely during a difficult time.

4. Create a home inventory list

It’s always a good idea to keep an updated home inventory list that can help you determine how much personal property coverage will protect your belongings. While most, if not all, of your belongings qualify for protection, insurers impose dollar limits on expensive items, like jewelry or antique furniture. Because of this, you should create a detailed home inventory so you can determine how much additional coverage you may want to purchase. Here’s how to do it:

  1. Make a home inventory. Use home inventory apps or templates to systematically list your belongings. You can categorize items by room for easier organization.

  2. Estimate values. Research market prices or use online resources to estimate the current value of your possessions. For unique or valuable items, consider professional appraisals.

  3. Consider the cost of replacing the item. Evaluate the current market cost of replacing each item with a new one of similar quality and functionality. You’ll want to take into account any upgrades or changes in market prices.

  4. Consider actual cash value vs. replacement cost. Remember, actual cash value policies cover items at their depreciated value, considering wear and tear, whereas replacement cost covers the cost of replacing items with new equivalents, without accounting for depreciation.

  5. Decide coverage limits. Review your policy to understand coverage limits for specific items, such as jewelry, electronics, or collectibles. If the limits are insufficient, consider purchasing additional coverage through a personal property floater or endorsement. An insurance agent can help you determine how much coverage you need if you’re still uncertain.

What Does Home Insurance Cover?

What Does Home Insurance Cover?

5. Protect your finances with personal liability coverage

Personal liability insurance shields your finances from legal expenses and claims if someone is injured on your property or if you accidentally damage someone else’s property. This coverage helps pay for legal defense costs, medical bills, and damages if you’re responsible for the injury or property damage.

However, it doesn’t cover intentional harm or incidents related to business activities. For example, if a visitor slips and falls on your icy driveway, personal liability coverage would handle their medical bills and potential legal fees.

Other types of insurance to consider

These are a few other types of homeowners insurance coverage you may want on your side:

  • illustration card https://a.storyblok.com/f/162273/x/4c9753bdbe/medical-payments.svg

    Medical payments

    Medical payments coverage takes care of guests’ medical expenses if they’re injured on your property, regardless of fault. This coverage is essential for quickly assisting with visitors’ medical bills and maintaining positive relationships.

  • illustration card https://a.storyblok.com/f/162273/100x100/4ec24627d2/flood-coverage.svg

    Flood insurance

    Flood insurance covers damage caused by flooding events, such as natural disasters or heavy rains. It’s crucial in flood-prone areas, as standard policies don’t cover this type of damage. Flood insurance is available through the federally backed National Flood Insurance Program (NFIP) or from dozens of private flood insurers.

  • illustration card https://a.storyblok.com/f/162273/x/abffe6238f/financial-protection.svg

    Umbrella policy

    An umbrella policy provides extra liability coverage beyond your standard homeowners policy. It’s beneficial when you need additional protection against legal claims or judgments that exceed your primary policy limits, particularly when you have high-value assets. Personal umbrella limits typically begin at $1 million and can also provide additional liability coverage for your vehicles.

  • illustration card https://a.storyblok.com/f/162273/x/a0c151e1ba/accidental-tearing-apart-cracking-etc.svg

    Earthquake insurance

    Earthquake insurance protects your property in case of seismic events, covering damage resulting from earthquakes. This coverage is vital in regions prone to earthquakes, ensuring your finances are safeguarded if your home receives substantial seismic damage. You can usually add earthquake coverage as an endorsement to your standard home insurance policy. In California, the California Earthquake Authority provides earthquake coverage.

  • illustration card https://a.storyblok.com/f/162273/x/2c500fdca3/accidental-discharge-of-water.svg

    Water backup coverage

    Water backup coverage shields your finances from damage caused by sewer, drain, or failed sump pump backups. It’s essential in areas where such incidents are common, especially if you have a basement or lower level, and prevents financial losses from water damage within your home.

Home insurance FAQs

Learn about perils that home insurance doesn’t typically cover, and check out the answers to common questions about home insurance below.

  • What does homeowners insurance cover?

    Homeowners insurance covers your home’s structure and personal belongings from damages, theft, and liability for injuries or property damage to others on your property. It also pays for loss of use/additional living expenses for temporary lodging if a covered peril temporarily displaces you from your home.

  • What does homeowners insurance exclude?

    Homeowners insurance typically excludes flood damage, earthquake damage, intentional acts, normal wear and tear, and certain high-value items if you don’t have additional coverage.

  • How much does homeowners insurance cost?

    The overall average homeowners insurance premium is $2,724 a year, according to Insurify data. However, your home insurance costs can vary based on ZIP code, home value, personal belongings, and more.

  • What is the 80% rule in homeowners insurance?

    The 80% rule in homeowners insurance states that your coverage needs to be at least 80% of your home’s replacement cost to avoid penalties for partial losses.

Sources

  1. III. "How much homeowners insurance do I need?."
  2. III. "Homeowners Insurance Basics."
  3. III. "Insurance for Your House and Personal Possessions."
Jacqueline DeMarco
Jacqueline DeMarco

During college, Jacqueline DeMarco interned at a retirement plan advisory firm and was tasked with creating a presentation on the importance of financial wellness. During her research into how money can affect our health, relationships and career, Jacqueline realized just how important financial education is. Jacqueline is a contributor for Insurify and has worked with more than a dozen financial brands, including LendingTree, Capital One, Credit Karma, Fundera, Chime, Bankrate, Student Loan Hero, ValuePenguin, SoFi, and Northwestern Mutual, providing thoughtful content to give readers insight into complex topics that they likely didn’t learn in school.

Courtney Mikulski
Edited byCourtney MikulskiSenior Editor, Auto
Courtney Mikulski
Courtney MikulskiSenior Editor, Auto
  • 3+ years producing insurance and personal finance content

  • Main architect of the Insurify Quality Score

Courtney’s deep personal finance knowledge extends beyond insurance to credit cards, consumer lending, and banking. She thrives on creating actionable content.

Featured in

media logomedia logo
Mark Friedlander
Reviewed byMark FriedlanderDirector, Corporate Communications, Triple-I
Mark Friedlander
Mark FriedlanderDirector, Corporate Communications, Triple-I
  • Corporate communications director for Insurance Information Institute

  • 20+ years in insurance and communications

As Director, Corporate Communications for Triple-I, Mark serves as the non-profit’s national spokesperson, sharing information and education on a wide array of insurance issues.

Compare Home Insurance Quotes Instantly

Secure. Free. Easy-to-use.
Based on 3,806+ reviews
4.8/5
Shopper Approved
ProgressiveLiberty MutualAllstate

Latest Articles

View all