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How much homeowners insurance do I need?

You'll need enough homeowners insurance to rebuild your home, replace your belongings, and protect the total value of your assets.

Pat Howard 1600Kara McGinley

By

Pat Howard

Pat Howard

Managing Editor & Licensed Home Insurance Expert

Pat Howard is a managing editor and licensed home insurance expert at Policygenius, where he specializes in homeowners insurance. His work and expertise has been featured in MarketWatch, Real Simple, Fox Business, VentureBeat, This Old House, Investopedia, Fatherly, Lifehacker, Better Homes & Garden, Property Casualty 360, and elsewhere.

&Kara McGinley

Kara McGinley

Senior Editor & Licensed Home Insurance Expert

Kara McGinley is a senior editor and licensed home insurance expert at Policygenius, where she writes about homeowners and renters insurance. As a journalist and as an insurance expert, her work and insights have been featured in Kiplinger, Lifehacker, MSN, WRAL.com, and elsewhere.

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Deante' Peake

Deante' Peake

Licensed Property & Casualty Expert

Deante' Peake is a licensed property and casualty insurance expert and a former operations manager at Policygenius.

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How much home insurance coverage do I need?

Your homeowners insurance coverage amounts should be based on the cost to replace your home, personal belongings, and the total value of your assets in the event your home is destroyed in a disaster or you're held legally responsible for an accident.

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When you get your homeowners insurance quote, the insurance company will likely provide an estimate of your home's replacement cost and other coverages in your policy. Below are the four main home insurance coverages in every standard policy, the typical limits for each one, and how to estimate these limits yourself based on your specific coverage needs.

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

Personal property coverage

50% of your dwelling limit

Make a home inventory of all of your personal belongings

Liability coverage

Up to $500,000

Add up all of your assets — including your home, belongings, cars, investments, retirement funds and savings

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

How much dwelling coverage do I need?

You should have enough dwelling coverage to cover the cost of rebuilding your home from the ground up in the event it's completely destroyed in a disaster.

This amount is different from your home’s market value, which is how much buyers are willing to pay for it on the real estate market. What you'll need to figure out is the home's replacement cost, or the cost to rebuild. 

How to calculate home replacement cost

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. [1]  

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

  • Recent renovations

➞ Learn more about how to estimate the replacement cost of your home

Consider enhanced dwelling coverage

There are times when your dwelling coverage limit may not be high enough to rebuild your house to it's pre-disaster condition — even when you think it's covered for its full replacement cost.

This is often the case in the wake of severe natural disasters, like a hurricane or tornado, when replacement costs surge in affected areas due to the increased demand for labor and construction materials. Underinsurance is also a problem during periods of high inflation when costs can rise over the course of weeks or months. Since policy limits are typically only adjusted once per year, this could mean your house is underinsured.

That's where having additional dwelling protection like extended or guaranteed replacement cost comes in handy.

  • Extended replacement cost: This is an optional home insurance coverage that protects you in the event your home is destroyed and rebuild costs are higher than the dwelling coverage limit in your policy. This coverage is offered by most home insurance providers in increments of 10% to 50% (of your dwelling limit), though higher or lower limits may also be available.

  • Guaranteed replacement cost: This is an optional home insurance coverage that pays the full cost of rebuilding your home after a disaster, regardless of the cost. This is similar to extended replacement coverage in that its triggered by spikes in reconstruction costs — the difference is there isn't a cap or limit to how much it will pay out.

Extended and guaranteed replacement cost are both limited by company and state. If you're interested in these coverages, reach out to your insurance agent to see if it's an available option, or shop around for home insurance company that offers it.

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. 

This means many homeowners are underinsured and don't know it. It's estimated that two out of every three homeowners don't have enough home insurance coverage to fully protect their home, belongings, and other assets after a covered loss, according to the Insurance Information Institute.

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.

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How much personal property coverage do I need?

The amount of personal property coverage you need is typically set at 50% of your dwelling coverage amount. That means if your home is insured for $400,000, your personal property coverage limit would be $200,000. 

However, some insurance companies will give you the option of increasing your personal property coverage limits up to 70% of your dwelling limit for an additional premium.

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: 

  1. 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.

  2. Decide if actual cash value coverage is enough.  Standard home insurance policies protect your personal property at its actual cash value — meaning depreciation is subtracted from your total reimbursement amount. But you have the option of upgrading your coverage to replacement 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. 

  3. 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.

How much liability coverage do I need?

To figure out how much personal liability coverage you actually need, you’ll want to add up the total value of your assets — including your home, belongings, vehicles, and liquid assets. That means 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.

If someone is injured while at your house and you’re held liable, you'll want enough personal liability coverage to cover expensive legal fees, medical bills, funeral expenses, and other liability expenses.

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 — the Insurance Information Institute recommends adding a personal umbrella policy. With umbrella insurance, you can usually increase your liability insurance between $1 million and $5 million.

How much additional living expenses coverage do I need?

Your additional living expenses coverage limit is typically 20% of your dwelling coverage limit by default, but your insurance provider may offer higher limits for an additional cost. If your home is located in an area prone to natural disasters, it may be worth opting for higher ALE limits.

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.

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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. We’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 home insurance companies on the market. 

We can even help you bundle your home and auto insurance together so you have fewer companies to deal with — and help you score a discount to boot!

3 additional coverages you may need

Every policy includes homeowners insurance exclusions, which are types of disasters or loss that aren't covered under your policy. To ensure you’re fully protected, consider optional policy add-ons or additional insurance coverage.

Flood insurance

While homeowners insurance covers certain causes of water damage — like a burst pipe — it doesn’t cover flood damage. Even if you don't live in an area that’s at high risk for flooding, you should still consider purchasing a standalone flood insurance policy anyway. 

Why? Because 25% of all flood losses occur in low-risk areas, according to the Insurance Information Institute. [2]

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.

→ Learn more about flood insurance

Earthquake 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 — even if you don't think earthquakes are a problem where you live.

Why? Because as many as half of Americans are exposed to a potentially dangerous quake, and that number is likely higher in earthquake-prone states like California, Nevada, and Oklahoma, according to the U.S. Geological Survey. [3]

→ Learn more about earthquake insurance

Water backup coverage

Damage from water that backs up through your drains or sewers or overflows from a sump pump isn’t typically covered by a regular homeowners insurance policy or flood insurance policy. [4] If you want protection from this type of water damage, you can add water backup coverage as an endorsement to your policy. 

→ Learn more about water backup coverage

Frequently asked questions

How much is home insurance a month?

The average cost of homeowners insurance is $158 a month, or $1,899 a year, according to our analysis. The amount you pay for coverage will vary greatly depending on your location, your home's size and characteristics, your credit score, and numerous other factors.

Do I need more home insurance coverage every year?

Because construction costs rise each year due to inflation, make sure to adjust your dwelling coverage levels at your annual policy renewal. You’ll also want to increase your coverage limits after major renovations, after adding a pool or gardening shed to your property, or after purchasing expensive valuables.

Is foundation repair covered by home insurance?

Homeowners insurance only covers foundation repair if the damage was caused by a covered peril or loss, like a fallen tree during a windstorm or an unexpected explosion because of a gas leak. But a typical policy won't cover foundation damage caused by flooding or earthquakes. It also won’t cover damage that occurs gradually over time, such as cracks due to the natural shifting or settling of the ground.

How much home insurance is required by mortgage lenders?

Many mortgage lenders will require enough home insurance to pay for a full rebuild of the home. Though some may only require you to purchase an amount equal to or greater than the principal balance of the mortgage. If you live in a high-risk flood zone, your lender may also require you to purhcase flood insurance.

Do I need additional insurance coverage if I'm renovating my home?

Depending on the extend of the renovations, you may need insure the home with a builders risk insurance policy throughout the course of the project. Most home insurance policies don't cover homes under construction due to the increased loss and liability risk. Some insurers may also offer a dwelling under construction coverage endorsement that you can add onto your home insurance policy.

References

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Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of our

editorial standards.
  1. Insurance Information Institute

    . "

    Insurance for Your House and Personal Possessions

    ." Accessed May 25, 2022.

  2. Insurance Information Institute

    . "

    Don't Risk Being Underinsured: Five Insurance Mistakes To Avoid

    ." Accessed May 25, 2022.

  3. United States Geological Survey

    . "

    Nearly Half of Americans Exposed to Potentially Damaging Earthquakes

    ." Accessed May 25, 2022.

  4. Insurance Information Institute

    . "

    Which Disasters Are Covered by Homeowners Insurance?

    ." Accessed May 25, 2022.

Authors

Managing Editor & Licensed Home Insurance Expert

Pat Howard

Managing Editor & Licensed Home Insurance Expert

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Pat Howard is a managing editor and licensed home insurance expert at Policygenius, where he specializes in homeowners insurance. His work and expertise has been featured in MarketWatch, Real Simple, Fox Business, VentureBeat, This Old House, Investopedia, Fatherly, Lifehacker, Better Homes & Garden, Property Casualty 360, and elsewhere.

Senior Editor & Licensed Home Insurance Expert

Kara McGinley

Senior Editor & Licensed Home Insurance Expert

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Kara McGinley is a senior editor and licensed home insurance expert at Policygenius, where she writes about homeowners and renters insurance. As a journalist and as an insurance expert, her work and insights have been featured in Kiplinger, Lifehacker, MSN, WRAL.com, and elsewhere.

Expert reviewer

Licensed Property & Casualty Expert

Deante' Peake

Licensed Property & Casualty Expert

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Deante' Peake is a licensed property and casualty insurance expert and a former operations manager at Policygenius.

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