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Mandy Sleight has over 15 years of insurance knowledge and expertise in auto, home, life, health, pet, supplemental benefits, and other insurance products. She’s a sought-after insurance expert, appearing in Bankrate.com, Moneygeek.com, U.S. News & World Report, Reviews.com, CNET, and other publications, and she's been writing for Compare.com since 2023.
Mandy uses her background and experience working for well-known insurance companies like State Farm and Nationwide Insurance to create engaging and easy-to-understand content that helps readers make smarter insurance choices that have a positive effect on their budgets and finances.
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Lequita Westbrooks is an insurance editor at Compare.com. Her writing and editing experiences span several industries, including insurance, personal finance, higher education, and more. She excels at explaining complex topics like auto insurance in simple, easy-to-understand language and is passionate about helping readers save money. Lequita graduated from the University of South Florida, where she earned her Bachelor’s degree in English.
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Buying a home is a big deal and probably one of the largest purchases you’ll make. That’s why it’s so important to make sure you have the right amount of homeowners insurance. Inadequate coverage could leave you with major out-of-pocket costs to rebuild your home, replace your belongings, or cover medical expenses if someone suffers an injury on your property.
Whether you’re a first-time homebuyer or just want to double-check your coverage, this step-by-step guide will help you determine how much home insurance you need.
Local construction costs and your home’s square footage are major factors in how much coverage you need.
You can calculate your personal property coverage needs by creating a home inventory.
You may need more than $100,000 in personal liability coverage if you have a higher net worth.
The amount of coverage you need largely depends on how much your home is worth. Several types of coverage come into play here, too. We’ve outlined each in the subsections below.
Dwelling coverage (Coverage A) pays the cost to repair or rebuild your home’s structure. Other structures coverage (Coverage B) protects things that aren’t permanently attached to your home, such as a detached garage, swimming pool, or shed. It’s limited to usually 10% of your dwelling coverage limit, but you can increase it if needed.
When figuring out how much home replacement dwelling coverage you need, consider your home’s size and square footage, any additions or updates, and home rebuilding costs in your area.
Most standard homeowners insurance policies come with replacement cost coverage, which is the amount it’d take to rebuild your home with similar kind and quality materials at today’s prices, up to your policy limits.
Actual cash value (ACV) may lower your premium, but it subtracts age, condition, and depreciation at the time of your claim, meaning you’d get less to repair or replace your home.
If you live in an area prone to natural disasters like hurricanes or wildfires, adding extended or guaranteed replacement cost coverage to your home policy may be worth the extra cost. A widespread major event could create a shortage of building materials or workers, causing construction costs to rise to keep up with demand.
Extended replacement cost coverage provides an extra 5% to 25% of dwelling coverage above your policy limits to cover the extra expenses.[1] Guaranteed replacement cost pays whatever it costs to rebuild your home with no cap.
If your home is older, ordinance or law coverage can be valuable. It pays for upgrades on covered repairs to meet building-code requirements that weren’t in place when your home was built or last repaired. Without it, you’d be out of pocket to bring it up to code.
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The following factors have the greatest effect on home rebuilding costs:
Your home’s square footage
The exterior wall construction type (frame, masonry, or veneer)
The style of your home, such as ranch, Colonial, Cape Cod, or Craftsman
Local construction costs
The number of rooms
Roofing material type
Special features, such as dormer windows, a fireplace, custom trim, or arched doorways
Improvements or upgrades that increased the value of your house, like a kitchen renovation, sunroom addition, radiant flooring system, or built-in shelving units
Whether part or all of your home is custom-built
The age of your home appliances, such as the plumbing, HVAC, and electrical systems
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It’s important to determine the value of your belongings to ensure you have enough home insurance coverage. Creating a home inventory list is the best way to determine your coverage amount. It should include details about your belongings, including age, estimated value, serial numbers, and other identifying information.[2]
Document your list on paper, in photos, or in a mobile app, and store it in a safe place. An up-to-date home inventory can also make the claim process faster and easier.
Personal property coverage (Coverage C) covers all your stuff in your home, including clothing, furniture, toys, cookware, tools, musical instruments, and electronics. Contents coverage typically starts at 50% to 70% of your dwelling coverage, but you can raise the limit if you need more protection.
If you want to replace damaged or stolen items with brand-new belongings, consider replacement cost instead of ACV on your contents coverage.
Most homeowners insurance policies have sublimit caps — usually up to $1,500 per claim — on jewelry and other valuable items like fine arts, firearms, precious metals, collectibles, and furs. If you have high-value items, you may want to get additional coverage, such as an endorsement or floater for scheduled personal property or a separate jewelry insurance policy.
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Liability coverage (Coverage E) protects you and members of your household against accidental injuries and damages to other people on your or their property. It also covers legal fees and settlement costs if they sue you.
For example, this coverage applies if someone slips and breaks their arm on your porch, your dog attacks a guest, or if your children are playing at your neighbor’s house and accidentally break an expensive vase.
The minimum liability coverage amount is $100,000, but you may need more if you have assets worth protecting — potentially $300,000, $500,000, or even $1 million to adequately protect everything.
If a covered disaster, such as a hurricane or fire, makes your home unlivable, additional living expenses (ALE) — or Coverage D — will pay for temporary living costs beyond your normal expenses while you rebuild your home.[3] It won’t pay your mortgage, but it’ll cover a hotel stay and meals if there isn’t a kitchen you can cook in.
Your homeowner policy can also provide medical payments to others (Coverage F) for accidental injuries to people who don’t live with you. Coverage amounts are usually small compared to liability coverage, ranging from $1,000 to $5,000.
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A standard homeowners insurance policy can cover a lot, but it doesn’t cover everything. For instance, your home policy won’t cover earthquakes or floods. Some insurers offer an earthquake endorsement, or you can buy a separate policy. You can get a flood insurance policy from an insurance company or the National Flood Insurance Program (NFIP).
Water backup coverage, or backup of sewer and drains coverage, is optional but may be worth it if you have a sump pump or want coverage if sewage backs up into your drains.
You should consider a personal umbrella policy if you have more than $1 million in assets. An umbrella policy kicks in if someone sues you and you use up your underlying home insurance liability limits.
For example:
Let’s say you’re hosting a family gathering at your home, and one of your guests falls off your trampoline and breaks multiple bones and has a serious head injury. They sue you and win. The total cost for legal fees, medical bills, and settlement is $400,000.
Your homeowners policy pays $300,000 under your liability coverage, but the remaining $100,000 would come out of your pocket — unless you have an umbrella to cover it.
Getting personalized rates from multiple companies is the best way to save.
We answered common questions about home insurance coverage to help you decide how much coverage you need.
It’s best to work with your insurance agent to determine if you have enough home insurance. Insurance companies have valuation tools that can determine how much dwelling coverage you need. You can also make a home inventory to estimate your personal property needs.
To calculate how much personal property coverage you need, create a home inventory of all your belongings and determine an estimated cost to replace each category, such as furniture, appliances, cookware, decorations, electronics, and clothes. Most standard homeowners policies default to 50% to 70% of the dwelling coverage amount.
You should insure at least 80% of your home value to get full coverage if you have to file a claim.[4] This is commonly known as the 80/20 rule, or co-insurance clause. So, if your home is worth $300,000, your minimum dwelling coverage should be $240,000.
No. Once you pay your house off, keeping home insurance is optional. That said, homeowners insurance can be worthwhile if you suffer a fire or other covered disaster destroys your home. It’s a good idea to keep it if you want to protect yourself against financial disaster.
The average annual cost of home insurance is $2,584 for $300,000 in dwelling coverage, according to Compare.com data. But your premium depends on multiple factors, including your insurance company, ZIP code, home size and square footage, and coverage choices and amounts.
It’s possible, but not necessarily likely. If your home policy includes inflation protection, your coverage limits and premiums might increase at each renewal to keep up with rising construction costs. But since homeowners insurance covers your home’s structure and belongings and not the land, it’s unlikely that your premium will increase just because the value of your home goes up.
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Mandy Sleight has over 15 years of insurance knowledge and expertise in auto, home, life, health, pet, supplemental benefits, and other insurance products. She’s a sought-after insurance expert, appearing in Bankrate.com, Moneygeek.com, U.S. News & World Report, Reviews.com, CNET, and other publications, and she's been writing for Compare.com since 2023.
Mandy uses her background and experience working for well-known insurance companies like State Farm and Nationwide Insurance to create engaging and easy-to-understand content that helps readers make smarter insurance choices that have a positive effect on their budgets and finances.
Lequita Westbrooks is an insurance editor at Compare.com. Her writing and editing experiences span several industries, including insurance, personal finance, higher education, and more. She excels at explaining complex topics like auto insurance in simple, easy-to-understand language and is passionate about helping readers save money. Lequita graduated from the University of South Florida, where she earned her Bachelor’s degree in English.
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