How much homeowners insurance do I need?

How much homeowners insurance you need depends largely on how at-risk your home is to be damaged, how much stuff you have, and how likely someone is to get hurt in your home.

Pat Howard 1600

Pat Howard

Published March 4, 2019

Homeowners insurance protects you in the event that your home or belongings are damaged, stolen, or destroyed. Its perhaps the most important form of financial protection, as most of your assets are tied up in your home.

So how do you determine how much homeowners insurance you need? When you set up your policy, you set coverage amounts to cover the home’s structure against hazards, personal property protection if your stuff is damaged or stolen, liability protection if someone is hurt in your home, and additional living expenses if you’re forced to relocate.

Every standard homeowners policy you look at will include those four components. As for how much of each component you need, that comes down to how at-risk your home is to be damaged as a result of weather or location, the value and type of personal property in your home, liability risks like trampolines or pools, and much more.

Calculating your homeowners insurance coverage needs

MINIMUM COVERAGEMAXIMUM COVERAGE
Hazard coverage$300,000$775,000
Other structures coverage$30,000$77,500
Personal property coverage$150,000$250,000
Loss of use coverage$90,000$200,000
Liability coverage$100,000$500,000
Medical payments to others coverage$1,000$5,000

Homeowners insurance policies consist of five main coverage components that kick in if the risk-event or peril that caused the damage, theft, or accident is covered by your homeowners insurance policy

Your hazard coverage effectively sets the coverage amounts for everything except liability coverage and medical payments coverage. Coverage limits for personal property, other structures, and loss of use coverage are determined as a percentage of your total hazard coverage, and the percentage breakdown usually looks something like this:

  • Personal property: 50 percent

  • Other structures: 10 percent

  • Loss of use: 20 percent

Your total hazard coverage should be enough to cover a full rebuild of your home, the cost of which can vary depending on what kind of materials the house is constructed with, square footage of the house, if you have garages or gardening sheds that need to be rebuilt (which would be covered by your other structures coverage), and so on.

Liability coverage protects you in the event you’re found legally liable for something that happens on your property. Although coverage usually starts at around $100,000, most insurers recommend at least $300,000 in liability coverage.

Medical payments protects you if you’re required to pay the medical bills of someone injured on your property..

To learn more about homeowners insurance and its components, find out what is covered and what isn’t covered.

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Determining how much homeowners insurance you need

Deciding on how much financial protection you need for your home in a worst case scenario isn’t nearly as fun as picking out a new car or deciding where to go on your next vacation, but it’s about doubly important as both of those luxuries, and is worth your time to get it right.

When you choose policy limits, you’re not guessing how much coverage you need, but rather:

  • Evaluating what you own and how much you suspect it's worth

  • Conducting a cost/benefit analysis on choosing a lower liability limit vs a higher liability limit

  • Seeking expert advice on what the rebuild cost of your home would be

Sometimes, it may come down to what you can afford to insure or deciding between an actual cash value policy (lower premiums, but only covers houses rebuild after home’s depreciation is accounted for) or a replacement cost value policy (highers premiums, but covers rebuild, regardless of home’s depreciation).

These areas are a good place to start when figuring out how much homeowners insurance you need.

What is the rebuild cost of my home?

When you plan your rebuild, the part that's covered by hazard insurance, you’ll want to start by contacting your insurance agent along with local homebuilders to determine the cost per square foot in your area and then multiply that by the total square footage of your home. This determines the home’s build price.

From there, you calculate the replacement cost of everything the home is made up of, including but not limited to flooring; cabinets and appliances; roof replacement; and house exterior like windows, brick siding and even your backyard deck.

In order to get a proper valuation for the housing materials, you’ll need to contact installers, contractors and roofing companies. Or if the do-it-yourself-method is too much for you, you can hire an independent appraiser to come by and give your home a thorough inspection.

At Policygenius, we’ll provide the expertise you need to make sure your entire home is covered.

What do I own?

This is where your insurance plan’s personal property coverage comes in — and you’ll notice that what you own adds up to a hefty portion of your claim, so you’ll want to take an inventory of everything that you own, value it, and calculate what it would cost to replace or repair your personal property or belongings in the event that they’re damaged or stolen.

Do I need additional coverage?

If you live in an area susceptible to flooding or earthquakes, your mortgage company is probably going to require that you add additional coverage to your homeowners policy to cover those perils, or add separate flood and earthquake insurance policies entirely.

You should also consider water backup coverage. Most insurers will cover water damage or bursted and leaky pipes if the damage was sudden and unexpected, but they won’t cover that pipe that had it coming for months or years. Water backup coverage covers most water damage-related circumstances (except for a leaking pool, irrigation or flooding) and is worth adding to your policy if you live in an older home.

You also may want to consider adding additional coverage if you own a pool. The Insurance Information Institute actually suggests adding a personal umbrella policy above the limits of your homeowners insurance policy.

How much liability can I afford to pay?

Think about it this way, if someone is injured or hurt in your home and they decided to sue you, how much coverage do you think you’d need? The answer is probably more than your initial guess, that’s because court is unpredictable and expensive; if it goes to court and they win the lawsuit, you’ll most likely be paying their legal fees on top of your own, along with the reward, which will be astronomically high.

You’ll also want to have medical payments coverage, which in some policies is grouped in with liability but can also be a separate component on your insurance plan. You’ll want your limit to be high enough to cover medical bills, so if your kids have a lot of friends, and you own a pool, well, you do the math.

If you feel more comfortable going beyond the standard maximum coverage limit ($500,000) to say, a million, consider adding an umbrella policy.

For more information on how much each homeowners insurance component costs, we have a handy explainer just for you.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.