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Licensed Property & Casualty Expert
Updated April 18, 20226 min read
Homeowners insurance protects your home and personal belongings in case they’re damaged in an unexpected event, like a storm or fire. It also covers your personal assets if someone is injured at your home and you’re held legally responsible.
To determine how much homeowners insurance you need, you’ll want to add up the costs to fully rebuild your home, replace your belongings, cover expenses if you can’t live in your home while it’s being rebuilt, and protect all of your assets if you’re sued.
Most home insurance companies will help you calculate how much insurance coverage you need based on information you provide in your application.
Here’s a quick look at the typical homeowners insurance coverage amounts based on the different sections of your policy. You can jump down to each section for more details by clicking on the links in the table below.
|Coverage type||Typical coverage limits||How to calculate needs|
|Dwelling coverage||$100,000 to $1 million||Multiply the square footage of your home by the average cost per square foot to build in your area|
|Other structures coverage||10% of your dwelling limit||Multiply the square footage of the other structures on your property by the average cost per square foot to build in your area|
|Personal property coverage||50% to 70% of your dwelling limit||Make a home inventory of all of your personal belongings|
|Personal liability coverage||Up to $500,000||Add up all of your assets — including your home, belongings, cars, investments, retirement funds and savings|
|Medical payments to others coverage||Typically $5,000 — though possible to increase up to $25,000||Increase limits if you own a pool, dog, or trampoline that put your guests at greater risk of injury|
|Additional living expenses coverage||20% of your dwelling limit||Add up how much you spend on living expenses like food, rent, and gas in a typical month|
Dwelling coverage is the part of your homeowners insurance policy that reimburses you when the structure of your home is damaged. You should have enough dwelling coverage to fully rebuild your home from the ground up if it’s completely destroyed in a disaster.
Your dwelling coverage limits should not be based on your home’s market value, which is how much buyers are willing to pay for it on the real estate market. Instead, how much dwelling coverage you need should be determined by the rebuild cost of your home — also known as the replacement cost.
Let’s take a look at an example.
Say you just went through a bidding war to purchase your first home. While the rebuild cost of the home is only $400,000, you paid over $500,000 for it due to the competitive real estate market.
You’d only need $400,000 in dwelling coverage — even though you paid over $100,000 more when you purchased the home.
To get a rough idea of how much your home’s rebuild value is, there’s a simple way to do it: Multiply the square footage of the home by the average cost per square foot to build in your area.
You can also use this same method to calculate the rebuild cost of other structures on your property, which we’ll get into more next.
There are many factors that affect a home’s rebuild cost, including:
Local construction costs
Age of your home
Your home's square footage
Number of bathrooms and other rooms
Style of your home — colonial, ranch, farmhouse, craftsman, etc…
Type, materials, and age of your roof
Special features of your home — fireplaces, crown molding, arched windows, etc…
Whether your home was custom built
Rising construction costs could leave you underinsured
Home insurance doesn’t account for inflation — the increased prices of labor and construction materials. It also doesn’t take into consideration the cost of bringing an older home up to code during a rebuild.
Check with your insurance company to learn if they offer any coverage add-ons to protect you against this — like inflation guard or ordinance or law coverage. This ensures you have enough coverage to fully rebuild your home, even if construction costs rise.
Other structures coverage pays to repair other structures on your property not attached to your home— like detached garages, sheds, fences, and guest houses.
The amount of other structures coverage you need is typically set at 10% of your home’s dwelling coverage limit.
So if your home is insured for $400,000, your other structures coverage would max out at $40,000. However, most insurers let you increase this limit for an additional fee.
To nail down if you need more coverage than your policy allows, calculate the rebuild cost of all of your structures using the method above.
Personal property coverage pays for your belongings — like your furniture, electronics, and wardrobe — if they’re damaged by a covered event like a fire or windstorm.
The amount of personal property coverage you need is typically set at around 50% to 70% of your dwelling coverage amount.
So if your home is insured for $400,000, your personal property coverage limit would be anywhere from $200,000 to $280,000.
However, you can usually increase your personal property coverage limits for an additional fee.
3 steps to figure out how much personal property coverage you need
Follow these steps to determine how much personal property coverage you need on your home insurance policy:
Take a home inventory. A home inventory is a detailed list of all of your personal possessions — as well as their cost. It gives you a better idea of how much personal property coverage you need. And bonus: You’ll have records of your belongings if you need to file a claim.
Decide if actual cash value coverage is enough. Standard home insurance policies protect your personal property at its actual cash value (ACV) — meaning depreciation is subtracted from your total reimbursement amount. But you have the option of upgrading your coverage toreplacement cost coverage, which doesn’t factor in depreciation when paying out your claim. If you decide to upgrade to this, you’ll typically pay 10% more than you would have with ACV coverage.
Add extra coverage for high-value belongings. Home insurance companies set restrictions on how much they’ll reimburse you for high-value items like jewelry or computers. For example, jewelry coverage often maxes out at $2,000. If you have expensive belongings, check with your insurance company to see if they offer a scheduled personal property endorsement to increase your coverage limits for specific items.
If someone is injured or their property is damaged while at your house and you’re held liable, personal liability coverage pays for legal fees, repair or medical bills, funeral expenses, and any settlement amount you have to pay out.
The amount of personal liability coverage offered by standard home insurance companies typically maxes out at $500,000 — but this might not be enough.
To figure out how much personal liability coverage you actually need, you’ll want to add up all of your assets — including your home and belongings, cars and boats, savings and investments, and retirement funds and pensions.
So if you have $400,000 in assets, you should have at least $400,000 in personal liability coverage — if not more to ensure you’re fully protected.
Have more than $500,000 in assets? Consider an umbrella policy
If your assets total more than the maximum personal liability coverage limit in your policy — typically $500,000 — consider adding a personal umbrella policy. With umbrella insurance, you can usually increase your liability insurance between $1 million and $5 million.
Medical payments to others coverage pays for medical bills for your guests if they’re injured while at your home — regardless of who’s at fault.
The amount of medical payments to others coverage you need is typically set at around $5,000 — though you might be able to increase it to $10,000 or even $25,000 depending on the company.
Additional living expenses (ALE) — also called loss of use coverage — is the part of home insurance that pays for you to live somewhere else if your home is being repaired after a covered disaster. It can help pay for things like hotel stays, restaurant meals, transportation, pet boarding, and other living expenses.
The amount of additional living expenses coverage you need is typically set at 20% of your dwelling coverage.
But some insurers will let you choose higher coverage limits for an additional cost. If your home is located in an area that’s prone to natural disasters, it may be worth it.
You can calculate how much ALE coverage you need by adding up how much you spend on living expenses like food, rent, and gas in a typical month.
Policygenius can calculate how much home insurance you need — for free
Simply click the Start calculator button and answer a few questions to be connected with a licensed Policygenius expert. They’ll crunch the numbers to figure out exactly how much home insurance coverage you need and help you compare quotes from some of the best companies on the market.
They can even help you bundle your home and car insurance together so you have fewer companies to deal with — and help you score a discount to boot!
Homeowners insurance doesn’t cover everything — you may need to add additional coverages to your policy or purchase separate standalone policies to ensure you’re fully protected. These might include:
While homeowners insurance covers certain types of water damage — like a burst pipe — it doesn’t cover flood damage. If you live in an area that’s at high risk for flooding, you should consider purchasing a standalone flood insurance policy.
Homeowners who live in flood zones may also be required by their mortgage lender to have a flood insurance policy in addition to their regular home insurance.
Your standard home insurance policy also won’t cover earthquake damage. You may be able to add an earthquake endorsement to your current homeowners insurance policy.
Otherwise, you might want to consider purchasing a standalone earthquake insurance policy — something that might be wise if you live in an area of California where earthquakes are common.
Damage from water that backs up through your drains or overflows from a sump pump isn’t typically covered by a regular homeowners insurance policy. If you want protection from this type of water damage, you can add water backup coverage as an endorsement to your policy.
Homeowners insurance costs around $1,899 a year or $158 a year, according to our analysis of 2022 home insurance rates from across the country. But how much you pay will vary greatly depending on where you live, the size of your home, your credit score, and other factors. The best way to find out what you’ll pay for coverage is to shop for quotes from different insurance companies — which you can do right here at Policygenius.
Maybe — since inflation causes construction costs to rise each year, it’s not a bad idea to adjust your home insurance coverage levels to account for this. You’ll also want to add more coverage to your home if you made major renovations, added a new structure to your property, or purchased lots of expensive belongings to ensure you’re fully protected.
Home insurance covers foundation repair if the damage was caused by a peril that’s covered in your policy, like a fallen tree or explosion. But home insurance doesn’t cover flood or earthquake damage to your foundation. It also won’t cover any gradual damage, like if your foundation cracks over time due to normal wear and tear.
Most mortgage lenders require you to have enough coverage to rebuild your home completely from the ground up after a covered loss. This is to protect the lender's financial investment in your home should the unthinkable happen and it’s destroyed. Mortgage lenders typically require your coverage to include protection against hazards like fire, wind, hail, and vandalism. And if you live in a high-risk flood zone, your lender will likely require you to take out flood insurance as well.
Yes, you might want to take out builders risk insurance if you're renovating your home. This is because standard home insurance policies don't cover homes under construction. Most insurance carriers allow you to add builders risk insurance as an endorsement to your existing policy, helping you to avoid the hassle of taking out a separate policy with a different insurer.