How Much Homeowners Insurance Do You Need?

The right amount of homeowners insurance coverage will protect you if disaster strikes. Carrying too little coverage can leave you scrambling to afford repairs and replace your possessions, or financially responsible for injuries to someone visiting your property. But too much coverage could inflate your premiums for little to no gain.

Comparing rates, discounts, and companies is the best way to find the cheapest homeowners insurance. Here’s how you can determine the right amount of coverage to protect your biggest asset while keeping your premiums affordable.

What your home insurance should be able to pay for

A homeowners insurance policy aims to ensure you can rebuild and replace your home and its contents after a disaster. Most people can’t afford to pay for major repairs or replace all their belongings out of pocket.^[1]

A homeowners insurance policy should offer the following coverage areas to protect you, your home, and your belongings:

• Rebuilding costs: Known as dwelling coverage, this part of your insurance policy will pay to repair or rebuild your home if a covered peril damages or destroys it.

• Replacing possessions: Homeowners insurance will pay to repair or replace belongings, such as furniture, jewelry, clothes, and electronics, if a covered peril damages them.

• Additional living expenses: Many covered perils make your home uninhabitable during repairs, so home insurance offers coverage to pay for temporary housing during reconstruction or repair.

• Personal liability: If someone injures themselves on your property, personal liability financially protects you by paying for their medical bills, legal fees, and settlements if they sue you.

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How much coverage you should have

You should have some level of dwelling coverage, other structures coverage if you have a detached garage or shed, personal property coverage, loss of use coverage, and liability coverage.

The table below illustrates the various levels of coverage you can consider.

The cost to rebuild your home: Dwelling coverage

Dwelling coverage will pay to repair damage to the structure of your home after a covered peril. It’s important to buy sufficient dwelling coverage to completely rebuild your home if necessary since there’s no way to predict a disaster that could completely destroy your home.

To figure out how much dwelling coverage you need, you should first decide between actual cash value (ACV) coverage and replacement cost coverage. Actual cash value coverage takes depreciation into account and generally offers a payout that’s less than the original purchase price. Replacement cost coverage pays for the labor, construction, and materials costs that might go into rebuilding your home.

Most homeowners should choose replacement cost coverage because it considers the costs of rebuilding compared to the home’s market value. To determine the right dwelling replacement cost coverage amount, you should consider the following factors:

• Cost of materials and labor to rebuild your home from the ground up

• Differences between current building codes and those in place when the house was originally built

• Cost of any improvements you’ve made to the home

How to calculate dwelling coverage amount

You can use several simple strategies to calculate the appropriate amount of dwelling coverage for your home. These include:

• Consult with your insurance agent or real estate agent. Housing professionals have experience, tools, and insight into the right amount of dwelling coverage you need.

• Use an online calculator. An insurance calculator can help you figure out your dwelling coverage.

• Use the 80/20 rule. Insure your home for at least 80% of its replacement cost.

Cost to rebuild your deck, shed, or fence: Other structures coverage

If a disaster strikes your home and destroys your detached garage, deck, or shed, dwelling coverage won’t pay to repair or rebuild it.

Other structures coverage is the insurance you need to repair or rebuild structures on your property that aren’t attached to the main house. This includes detached garages, swimming pools, sheds, and gazebos.

Similar to dwelling coverage, you can choose the coverage level you want and decide between actual cash value and replacement cost coverage.

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Cost of replacing your possessions: Personal property coverage

The personal property coverage portion of your homeowners insurance policy pays for the loss or damage of your belongings because of a covered peril, including theft or vandalism.

The minimum personal property coverage you need is about 50%–70% of your dwelling coverage limit, but the actual amount depends on what you own. If you’ve already replaced your college-era television and IKEA furniture with better-quality items, you may want to consider increasing your personal property coverage. 

Similarly, if you have many expensive items, such as jewelry or artwork, you may need to secure additional coverage or a rider to protect those belongings.

The best way to determine the correct amount of personal property coverage is to make and maintain a home inventory of your possessions. This inventory should include a detailed list of your belongings, including the estimated value of the items, descriptions, and serial numbers.

Temporary living costs: Additional living expense coverage

Some types of disasters and repairs can make a house uninhabitable. Temporary living costs coverage pays to house and feed you and your family while the repairs are being done.

The level of coverage you need for temporary living costs varies depending on what work needs to be done on your home. Consult with your insurance or real estate agent to help you determine the best amount of coverage for your needs.

Your legal costs: Liability coverage

If someone suffers an injury at your home, it could leave you financially vulnerable. This is when personal liability coverage comes in. For example, if a guest slips on the ice in your driveway and breaks a wrist, your personal liability coverage will pay for their medical expenses, cover legal fees, and pay out settlements if they sue you and you’re liable for the injury.

Generally, every homeowner should carry a minimum of $100,000 in personal liability coverage, although you may want to increase your coverage. To calculate how much liability insurance coverage you need, it’s helpful to add up your net worth and the value of your assets. If your personal net worth and assets are higher than the standard coverage limits for homeowners insurance, purchasing an additional umbrella policy may make sense.

Average homeowners insurance costs

The national average cost for a standard homeowners insurance policy with $300,000 in dwelling coverage is $2,377 per year, or about $198 monthly. While this is the national average, home insurance costs can be much higher or lower depending on where you live and what coverage levels you choose.

Factors outside your control, like your ZIP code, local construction costs, and common natural hazards in your area, can all affect how much you pay for your home insurance policy. But you can choose your home insurance company, your coverage limits, and types of policies. These decisions can all influence how much you’ll actually pay for home insurance.

Homeowners insurance averages by state

The price of homeowners insurance can vary greatly depending on which state you live in. For example, Florida has the highest average rates, which reflects the high risk homeowners face from various natural disasters, like hurricanes and other tropical storms.

Vermont, on the other hand, has the lowest homeowners insurance rates in the nation. Because of Vermont’s relatively low risks for natural hazards, residents pay lower home insurance premiums.^[2]

See how your state’s average home insurance costs stack up in the table below:

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Factors that affect home insurance costs

How much you pay for homeowners insurance depends on several factors. The main factors that determine your insurance costs include:

• 

  Location

  Everything from the local weather patterns to the theft and property crime statistics in your ZIP code to your proximity to fire stations can affect your rates.

• 

  Age of the home

  Older homes are generally more susceptible to weather-related damage than newer homes.

• 

  Type of home

  The cost of your policy will vary depending on whether you live in a single-family home, a townhouse, or a condo.

• 

  Age of the roof

  Your roof protects your home from water and wind damage; the older your roof, the more wear and tear it has. Insurance companies charge higher rates to homeowners with roofs 20 years or older.

• 

  Safety features

  Having a burglar alarm, fire extinguishers, and sprinklers can all reduce the risk of theft or damage, which is why insurers often lower rates for homeowners with these safety features in place.

• 

  Local risk factors

  Areas prone to hazards like wildfires, flooding, ice storms, or other risks will see higher home insurance premiums since homes in those areas are more likely to file claims.

• 

  Claims history

  If you’ve made multiple claims in the past, your insurance company is more likely to increase your premiums since you’re statistically more likely to make additional claims in the future.

What home insurance covers

Your home insurance coverage pays for property damage, loss of household items, or other belongings if the damage is from a covered peril. For example, home insurance covers theft. If a burglar breaks into your home and steals your TV, laptop, and other electronics, your insurance will help you pay to replace your lost property — up to your policy limits.

In addition to burglary, a homeowners policy typically covers the following perils:^[3]

• Fire or lightning

• Windstorm or hail

• Explosion

• Riot or civil commotion

• Aircraft

• Vehicles

• Smoke

• Vandalism or malicious mischief

• Theft

• Volcanic eruption

• Falling object

• Weight of ice, snow or sleet

• Accidental overflow of water from household appliances or plumbing, heating, air conditioning, or fire sprinkler systems

• Freezing of household appliances or plumbing, heating, air conditioning, or fire sprinkler systems

• Accidental cracking, burning, tearing, or bulging of plumbing, heating, air conditioning, or fire sprinkler systems

• Accidental damage due to short-circuiting of electrical current (excluding loss of necessary electrical)

Though home insurance policies generally cover these perils, it’s a good idea to review your homeowners insurance to ensure you understand exactly what you’re covered for.

What home insurance won’t cover

Homeowners insurance doesn’t cover several perils. For example, flood damage from anything other than overflow of water from a household system is generally not covered by home insurance. If you live in a flood plain, you’ll need to purchase a flood insurance policy from the National Flood Insurance Program or a private insurer to protect your home.

In addition to flooding, most home insurance policies don’t cover the following perils. You may need to purchase extra coverage if you live in an area prone to any of these perils:

• Earth movement: Home insurance generally doesn’t cover damages from earthquakes, landslides, and sinkholes.^[4]

• Animal or rodent damage: A standard policy doesn’t cover damage from insects, birds, and rodents.

• Water damage: You may need to purchase supplemental coverage for flood damage, sewer backups, and other gradual water damage.

• Mold: Most standard homeowners insurance policies don’t cover mold damage, although you may be able to add it for an additional premium.^[5]

• Later volcano eruption effects: A standard home insurance policy may not include damage from the after-effects of a volcanic eruption, like wind-deposited ash, landslides, shockwaves, and more.

• Wear and tear: Home insurance won’t cover the home’s gradual deterioration or wear and tear.^[6]

How to reduce homeowners insurance costs

Though some of the factors your insurer uses to set your premium rates are outside your control, you can still use several strategies to lower your costs. Here are some of the best ways to reduce your homeowners insurance rates:

• Shop around. Insurance companies don’t all use the same factors to set premiums, which means comparing quotes among multiple insurers is the best way to find the right policy at the best price.

• Improve your home security. Adding safety and security features, like a burglar alarm and fire extinguishers, can often snag you a discounted premium rate.

• Make weather fortification improvements. Shoring up your home to better withstand the most common severe weather conditions in your area can help you lower your insurance rates. For example, you might install hurricane shutters if you live in a more tropical area or insulate pipes if you live in an area with severe winter weather.^[7] [8]

• Ask about discounts. Discounts are common in the insurance industry. Checking your insurer’s website or asking your agent may help you discover discounts you qualify for. Common discounts include paid-in-full, auto-pay, new homeowner, senior, loyalty, claims-free, military, and fortified-home discounts.

• Bundle your insurance. You likely need additional insurance products on top of your homeowners insurance. You can purchase auto insurance, life insurance, business insurance, or umbrella insurance from the same company and get a bundling discount that saves you money on each policy.

• Raise your deductible. Setting your deductible to a higher level will give you lower premiums. If you can afford to pay a higher deductible in the event of a claim, this can be an easy strategy for lowering your premium rates.

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Other insurance policies you may need

Though a standard home insurance policy doesn’t cover every hazard your home may face, you can typically buy additional coverage to protect against those risks. Some of the additional coverage options you may want to consider include:

• 

  Flood insurance

  The National Flood Insurance Program offers flood coverage. But you may also be able to buy a separate flood insurance policy from your home insurance company or other private insurer.

• 

  Earthquake insurance

  You can generally purchase this as an endorsement or a separate policy from a private insurance company. If you live in California, you can also get earthquake insurance from the California Earthquake Authority (CEA).

• 

  Medical payments coverage

  This additional coverage pays for medical expenses for injuries people sustain on your property. It typically pays for necessary medical treatments, ambulance fees, and hospital bills for injured parties up to your policy’s limits. This coverage applies in any situation, regardless of your liability in the incident.

• 

  Water backup coverage

  If there’s damage to your home from water that originates inside the house, a standard policy will cover it. But if the water originates from outside the house, such as from the sewer or water line, you’ll need this coverage to pay for the damage.

• 

  Umbrella policy

  This excess liability insurance covers losses you’re responsible for paying that exceed your homeowner’s personal liability policy limits.

How much home insurance you need FAQs