How Much Homeowners Insurance Do I Need? (2024)

Homeowners insurance protects what may be the biggest investment of your life: Your residence. Having sufficient coverage is crucial in case of a disaster like a fire.

But how much homeowners insurance do you need? The key is to walk through each standard coverage type in a policy, adjust amounts as needed and then consider extra coverage to plug big holes.

What Home Coverage Types Do You Need?

A standard homeowners insurance policy comes with several necessary coverage types to address problems like damage to your house, theft or damage to your personal property, and accidental injuries to others.

How to Determine How Much Homeowners Insurance You Need

Deciding how much home insurance you need may require help from your home insurance company or agent, figuring out your assets and estimating the value of your personal property.

Choosing the Right Dwelling Coverage

Dwelling coverage pays to repair or rebuild your home if it’s damaged by a problem covered in your policy. Home insurance companies can usually provide an estimate of the cost to rebuild your house.

Most standard homeowners insurance policies cover the house structure for any problem except damage that is specifically excluded. These exclusions are listed in the policy and generally include floods, earthquakes and nuclear hazards.

Dwelling coverage should be based on the cost in your area to rebuild the house, factoring in local construction and materials costs. Your home insurance company can provide an estimate.

Dwelling coverage limits should be updated regularly, every year if needed, to reflect changing local labor and materials costs.

Dwelling insurance also influences coverage amounts for other structures and additional living expenses, but you can buy additional coverage if needed::

• Coverage for other structures is usually 10% of your dwelling coverage.
• Additional living expenses coverage is typically 20% of your dwelling coverage.

Buying better dwelling coverage

Having sufficient dwelling coverage to rebuild your house is the foundation of a good homeowners insurance policy. But there are times when even the “right” amount of coverage can fall short.

For example, after widespread disasters, such as a tornado, the cost of materials and labor can increase due to demand. That’s where coverage that allows for some wiggle room is useful. Two examples are extended replacement cost and guaranteed replacement cost coverage.

Extended replacement cost: Home insurance companies may offer extended replacement cost. This feature can provide anywhere from 10% to 50%—or more—of extra coverage to absorb a cost spike. PURE, for example, provides an additional 100% for extended replacement coverage in its policies for high-value homes.

Insurers offering “extended replacement cost” include:

• Chubb
• The Cincinnati
• Country Financial
• Erie Insurance
• Grange Insurance
• Lemonade
• PURE
• QBE Insurance

Guaranteed replacement cost: Guaranteed replacement cost coverage is even better because it pays to rebuild your house no matter how much it costs.

Insurers offering “guaranteed replacement cost” (and usually also extended replacement cost) include:

• Acuity
• AIG
• Central Mutual
• The Cincinnati
• Erie Insurance
• Farmers
• The Hanover
• Nationwide
• Palisades Property & Casualty

Availability of extended and guaranteed replacement cost can vary by company, state, policy type and even by house type. It may not be available for older homes.

Choosing the Right Personal Property Coverage

The amount of personal property coverage you need depends on your possessions. This coverage includes items such as your furniture, decorations, clothes, electronics, toys and appliances.

Home insurance companies often set personal property coverage at 50% to 70% of your dwelling coverage amount. You can adjust your contents coverage upward to get better insurance protection.

To determine if your personal property coverage is sufficient, it’s a good idea to calculate the value of your belongings. A good way to do that is with a home inventory. A home inventory can include information such as:

• Description of the item, including the make and model
• Estimated value
• When you bought it
• Serial number
• Receipts, if available

For general categories, such as clothing, you can provide the number of items, such as five dresses, three pairs of jeans and 10 dress pants. If the clothing is valuable, such as an expensive dress or suit, you should list them separately.

Replacement value coverage for better protection

You may choose between actual cash value or replacement cost coverage for your personal property. Actual cash value vs. replacement cost coverage influences how much you pay for coverage and how much you will get paid if you file a personal property claim in the future.

While some policies offer “actual cash value” coverage, you generally want to choose “replacement cost” coverage because it offers a higher claim payout. It reimburses you for the cost of buying new, similar items, not the depreciated value of what was destroyed.

“Open peril” coverage for belongings

A standard HO-3 home insurance policy covers damage to your belongings from 16 “perils,” which are listed in the policy. These perils include common problems such as fire, lightning, explosions, theft and vandalism. But limiting coverage to 16 perils leaves you open to a potential gap in coverage.

You can instead buy more comprehensive coverage by choosing an “open peril” or “all peril” coverage for your contents. This offers the highest level of insurance and covers any problem that’s not specifically listed as an exclusion in the policy. The standard policy name for this is an HO-5.

More: HO-3 vs. HO-5 Home Insurance

Theft limits

Many standard home insurance policies limit theft coverage on certain items, such as jewelry, watches, precious and semiprecious stones, and silverware. For example, a standard home insurance policy typically limits theft of jewelry to $1,500 in coverage. If you need more coverage for high-value items, you can schedule personal property.

Getting Better Liability Coverage

A general rule of thumb is to buy enough liability insurance to cover your net worth or what can be taken from you in a lawsuit, such as real estate and bank accounts. Having enough liability coverage is key to protecting your assets.

Instances when liability coverage may help you include:

• Medical bills and lost wages for a person injured at your home.
• Legal costs if someone sues you for a problem covered by your liability insurance.
• Problems for which you’re responsible, even if it’s away from your home, such as accidentally injuring someone.
• A death benefit to survivors if their loved one has a fatal accident at your home and you’re held liable.

Liability insurance is generally between $100,000 and $500,000. If your assets exceed that amount, you can buy umbrella insurance, which offers coverage of $1 million or more.

If your assets exceed your home insurance coverage limits, buy an umbrella insurance policy of $1 million or more.

Getting Sufficient Loss of Use Coverage

If you can’t live in your home while it’s being repaired due to a claim, additional living expenses (ALE) coverage, also called loss of use, will reimburse you for the extra costs of living elsewhere. It may reimburse you for loss of rental income if you rent a portion of the home.

The default coverage limit for loss of use could be 20% of the dwelling coverage. When you consider the extra costs for expenses such as hotel, restaurant meals and other services such as pet boarding, that might not be enough. If you need more ALE, you can increase your loss of use coverage.

Medical Payments Coverage

Medical payments coverage helps pay the medical bills of non-family members accidentally injured on your property. It also helps pay for accidents that happen away from your home, like your dog biting someone at the park.

Medical payments coverage is meant to pay for small injuries and help you avoid an injured person suing you. This coverage typically pays for medical expenses that are “reasonable and necessary” within a year of the accident. That period may be longer depending on the policy.

Medical payments coverage is usually sold in amounts between $1,000 and $5,000.

Better Home Insurance At a Glance

Once you figure out what you need, you can use a tool like our home insurance calculator, which estimates cost.

Natural Disasters Not Covered by Home Insurance

Some disasters require extra coverage, such as floods and earthquakes. Both of these are generally excluded from home insurance coverage.

• Flood insurance is available through FEMA and private flood insurance companies.
• Earthquake insurance is offered by many home insurers. In California, many insurers offer policies from the California Earthquake Authority.
• In some coastal areas, such as coastal Texas, homeowners must buy windstorm coverage separately from home insurance.

Additional Coverage You May Need

Depending on your situation, you may need additional coverage that’s not included in a standard home insurance policy. This can be done with add-ons and endorsem*nts to your base policy.

Home-based business insurance. If you run a business out of your home, especially where customers come and go, you likely need business liability and business property coverage. For example, if a customer is injured in your home office, you would need business liability insurance.

Identity theft. It can be expensive to recover from identity theft or being hacked. Floyd Yager, senior vice president of product management at Allstate, notes that cybercrime and identity theft are common exclusions in a homeowners policy.

“If your identity is stolen and they take funds out of your bank account, your homeowners insurance policy will not cover the loss,” he says.

Identity theft insurance is commonly available from home insurers. It reimburses you for money lost from these problems. For example, Allstate offers an identity theft endorsem*nt that reimburses up to $25,000, for $30 a year (depending on the state).

Cyber insurance. Some home insurance companies sell personal cyber insurance as an add-on to a policy. This covers you for cyberattacks, cyberbullying, cyber extortion, data breaches and online fraud.

More Home Insurance Extras

Home insurance companies often offer a wide variety of endorsem*nts to fill other coverage gaps. Depending on the company, you might be able to add on:

• Increased coverage for landscaping.
• Service line coverage.
• Increased coverage for ordinance or law (when rebuilding triggers the need to comply with a new law, such as new building codes).
• Inflation guard (keeps dwelling coverage up to date with the costs to rebuild).
• Bed bug coverage.
• Home day care coverage.
• Home systems breakdown coverage.
• Water backup and sump overflow.

FAQs: How Much Home Insurance Do You Need?