How much homeowners insurance do I need?

Your home is most likely your most valuable asset. A comprehensive homeowners insurance policy is required to protect it. However, purchasing homeowners insurance protects your savings and investments in addition to covering repair and replacement costs.

Although local and state governments do not require homeowners insurance, mortgage lenders typically do. In fact, most lenders specify the amount of insurance that a homeowner must carry, usually for the life of the loan. Mortgage companies, on the other hand, only consider the amount of insurance required to protect their investment. Other aspects of your homeowners policy, such as personal property or liability coverage, are typically not regulated by lenders. That is why it is critical to have adequate insurance coverage across the board. However, if you are purchasing homeowners insurance for the first time, the process can be intimidating.

Before purchasing a policy, you must first determine what type of coverage you require, how much coverage you require, and which home insurer is the best. Fortunately, obtaining the necessary coverage is as simple as following a few simple guidelines.

What is homeowners insurance?

The term "homeowners policy" typically refers to a collection of coverages that protect your home, its contents, and any other structures that are attached to it. Your insurance agent can assist you in determining how much coverage you require.

Homeowners policies can include:

Dwelling coverage: The primary homeowners insurance coverage is dwelling coverage. It protects your home and any attached structures, such as a garage.
Other structures coverage: This coverage extends to unattached structures on your property, such as a detached garage, shed, or fence.
Personal property coverage: The contents of your home, such as furniture, clothing, appliances, and electronics, are covered under this section of your homeowners policy.
Additional living expenses coverage: Also called loss of use, ALE coverage can pay some or all your living expenses if you are displaced from your home following a covered claim. For example, if a fire makes your home uninhabitable, your additional living expenses coverage may pay for temporary housing or hotel lodging while your home is being repaired. Out-of-pocket expenses, such as restaurant meals, are also covered by ALE.
Personal liability coverage: Personal liability coverage assists in the payment of claims when someone is injured in your home or on your property. For example, if a child falls from a tree in your yard, your personal liability policy may cover legal fees if a lawsuit is filed.
Medical payments for others coverage: If a guest is injured in your home or on your property and you are not legally liable, your medical payments for others coverage can still assist in paying medical expenses.

What standard homeowners insurance does not cover:

As a homeowner, you may experience a variety of mishaps, and your home insurance policy may not cover all of them. You may want to consider purchasing additional coverage for damages not covered by a standard homeowners insurance policy. Because a standard home insurance policy excludes certain risks, such as floods and earthquakes, you might want to consider the following coverage:

Flood insurance: According to the Insurance Information Institute (Triple-I), flooding accounts for 90% of all natural disasters in the United States. Flood insurance is not included in most homeowner's policies. A separate flood insurance policy would be required. Flood insurance is available through the Federal Emergency Management Agency's National Flood Insurance Program, as well as dozens of private insurers. Your agent can assist you in shopping for insurance.
Earthquake insurance: Even in high-risk areas, most homeowner policies do not cover earthquake-related damages or losses. Many home insurers, however, provide separate policies or endorsements for earthquake damage. The California Earthquake Authority provides this coverage in California.
Sinkhole coverage: Sinkholes are common in many parts of the United States, but they are not covered by a standard homeowners policy. Sinkhole property losses typically exceed $100,000, so this is critical coverage to have if you live in an area prone to this hazard.
Umbrella insurance: Umbrella policies assist in the payment of liability claims after the limit of your personal liability insurance has been reached. For example, if a court awards an injured person $500,000 after an injury on your property and your home's liability limit is only $300,000, your umbrella policy may pay the difference up to the umbrella policy limit.
Damage caused by a lack of maintenance: Normal wear and tear on property, as well as preventable damages, are not covered by a homeowners insurance policy. Keeping your home in good repair can help to mitigate this type of damage.
Sewer backup: Although sewer backup is not covered by a standard home insurance policy, it can usually be added as an endorsement. It is also critical to perform preventative maintenance to keep your home safe from clogged pipes.
Priceless jewelry and antiques: While coverage for valuables such as jewelry and art can be purchased as an endorsement or floater to an existing home insurance policy, items such as family heirlooms are frequently considered priceless by homeowners. As a precaution, keep these items in a secure location that is not vulnerable to theft or damage.
Aggressive dog breeds: Liability issues arising from the ownership of certain dog breeds, such as pit bulls, German Shepherds, or Rottweilers, are frequently not covered by home insurance. Inform your insurance company if you have a dog. If they exclude coverage for your dog's breed, you should look for a home insurer who does.

How much homeowners insurance do I need?

The amount of coverage required by each homeowner will vary greatly depending on their individual circumstances. Your agent can assist you in determining the value of your home to be used as the dwelling coverage amount. In general, secondary coverages are calculated as a percentage of the dwelling coverage amount in homeowners insurance policies. Other structures' coverage, for example, is typically set at 10% to 20% of the dwelling coverage value. Thus, for a $250,000 home, the coverage for other structures would typically range from $25,000 to $50,000.

Here are some pointers to help you figure out how much and what kind of homeowners insurance you need:

Understand the difference between actual value and replacement cost.

Your property loses value over time. If it is destroyed in a covered disaster and must be rebuilt, your insurance policy may cover either the actual cash value (the property's depreciated value) or the full replacement cost. Most standard homeowners insurance policies allow you to choose between replacement cost and actual cash value.

Typically, there is a cap on replacement cost value, and if rebuilding your home costs more than the cap, you may have to pay the difference out of pocket. This is when two additional options become available: guaranteed replacement cost value and extended replacement cost value.

Extended replacement coverage pays to rebuild your home to its pre-loss condition, even if the cost exceeds the property's actual cash value. There is a limit, but it is usually 50% higher than the coverage amount.

Guaranteed replacement coverage pays for the restoration of your property regardless of the cost of rebuilding. Many businesses will have an upper limit beyond which they will not provide guaranteed replacement cost. Some companies, for example, will not offer a guaranteed replacement cost option on homes worth more than $1 million.

Different methods of calculating the value of your home can produce varying results. A property assessor in your city or county may assign a lower value to your home than a real estate agent. However, when determining how much dwelling insurance to purchase, you must consider factors other than the market value of your home. For example, if you have an older home with plaster walls and custom-made trim, you may need to hire professionals to repair fire damage. Similarly, if you have expensive industrial appliances in your kitchen, those features should be considered when calculating your coverage amount.

Your insurance agent can assist you in determining the replacement value of your home. Most insurance companies provide tools to help policyholders calculate this value.

Consider the cost of construction in your area.

You buy homeowners insurance to protect yourself in the event of damage or loss, so you should know how much it will cost to repair or replace your home. Determine how much it will cost in building supplies and labor to restore your home to its original condition or to construct an equivalent new home. The number of bathrooms in your home, the materials used in its construction, and any special features all have an impact on the amount of coverage you require. For example, if your living room has imported custom tiling, you may require a higher level of coverage to protect it.

Consider who uses your home and how you use it.

The way you use your home can influence how much personal liability, medical payments, and umbrella insurance you require. For example, if you frequently host parties and get-togethers for friends and family, you may want to consider increasing your liability limit and adding umbrella coverage to protect yourself in the event that someone is injured as a result of your negligence. If you own a swingset, you should consider increasing your medical payments for others coverage in case a neighbor's child falls and injures themselves.

Research rental rates in your area

If your home sustains significant damage, you may be forced to live in temporary housing for several weeks or months while workers repair it. Determine how much it will cost you and your family to rent a home or apartment in your area, or to stay in a nearby hotel. Homeowners in expensive housing markets, such as San Francisco or New York City, may require more additional living expenses coverage than is provided by a standard policy.

Protect your personal belongings

A home inventory can be useful if you need to file a claim for damage to your personal property. This includes the following:

Name and description of items
Purchase cost or actual cash value
Date and place of purchase and receipts, if available
Photographs of each item
Estimated replacement cost

Having a digital inventory can also make the claim process go more smoothly. Everything you consider valuable, such as electronics, cash, jewelry, and furniture, should be included on the list. Consider using cloud storage for your inventory, or storing it somewhere else, such as your office or a family member's home. That way, if your house is damaged, the list will not be harmed as well. To make the process easier, you can also ask your home insurer for recommendations on inventory apps.

Determining the value and replacement cost of your possessions takes time and should be done with care. Items like modern sofas and coffee tables can be easily replaced, but fine art and family heirlooms are frequently irreplaceable. Individual items such as electronics and artwork are frequently subject to coverage limits in homeowners insurance policies. If you have a lot of valuable items, you should think about increasing the limits on your policy or purchasing additional coverage for specific possessions in the form of an endorsement or floater.

Requesting homeowners insurance quotes

After you have determined how much homeowners insurance coverage you need, it is time to start getting quotes from multiple carriers. As a starting point, we recommend checking the StrongInsurance list of the best homeowners insurance companies.

The average annual premium for homeowners insurance in the U.S. is $1,312 for a dwelling coverage limit of $250,000. Please note that the cost will vary from one insurer to another and also by location and type of coverage chosen.

Most major home insurers have an online quote tool that generates a price estimate based on information about you and your home. However, you can also contact a local agent and get a quote over the phone or via email, which might be more accurate.

When shopping for home insurance, it is a good idea to get several quotes from different different carriers, according to the Triple-I. That way, you can easily determine which property insurer can give you the best rate for the amount and type of coverage you need.

Methodology

StrongInsurance utilizes Quadrant Information Services to analyze rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Quoted rates are based on 40-year-old male and female homeowners with a clean claim history, good credit and the following coverage limits:

Coverage A, Dwelling: $250,000
Coverage B, Other Structures: $25,000
Coverage C, Personal Property: $125,000
Coverage D, Loss of Use: $50,000
Coverage E, Liability: $300,000
Coverage F, Medical Payments: $1,000

The homeowners also have a $1,000 deductible and a separate wind and hail deductible (if required).

These are sample rates and should be used for comparative purposes only. Your quotes may be different.

Rates are determined based on 2021 Quadrant Information Services data.