Updated: May 30, 2024
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To safeguard your home, ensure your home insurance considers the costs to repair, rebuild or replace your home after a disaster, along with personal belongings, liability protection and living expenses coverage.
Typically, securing a mortgage comes with the lender's requirement for adequate home insurance, setting a baseline for the coverage you need. Exploring different insurance types will help you select the coverage that aligns with your unique needs and lender requirements.
We recommend having enough home insurance to rebuild your home in the event of a total loss.
Your home insurance should also include coverage for your personal property, additional structures, liability coverage and loss of use.
Insurance coverage varies from company to company and region to region. Research carefully to ensure you have enough coverage for your needs.
Understanding the various types of home insurance coverage helps ensure comprehensive protection for your property, such as your dwelling, personal property, additional living expenses and liability. Many insurers also offer supplemental coverage options tailored to specific needs. These can be customized based on your current living situation and personal preferences.
Coverage Type | Description |
|---|---|
Dwelling Coverage | Covers the cost of repairing or rebuilding the physical structure of your home in the event of a covered loss |
Other Structures Insurance | Covers the cost of repairing or rebuilding physical structures on your property that are not part of your dwelling, like fences or detached garages |
Personal Property Coverage | Pays to replace your personal possessions (clothes, furniture, etc.) in the event of a covered loss |
Liability Coverage | Pays for damages and injuries for which you are legally responsible, such as damage to a neighbor’s property |
Medical Payments Insurance | Covers injuries suffered by a visitor on your property, regardless of fault |
Loss of Use Coverage (ALE) | Pays for living expenses incurred due to a covered loss, such as hotel rental costs or boarding fees for your pet |
If you aren’t sure what else your home insurance covers, ask your question below.
Determining how much homeowners insurance to get requires a balance between adequate protection and cost efficiency. Opting for higher policy limits means increased monthly premiums, offering more comprehensive coverage in disaster scenarios.
However, you also want to avoid over-insuring your property. Over-insurance occurs when the coverage significantly exceeds the cost to rebuild or replace your home and possessions, leading to unnecessarily high premiums without corresponding benefits. This scenario means you're paying for protection you realistically won't use.
To avoid overinsuring yourself, we've provided the generally recommended limits for the four primary coverages driving home insurance prices: dwelling, personal property, living expenses and liability insurance.
If your main concern is price, you can use our calculator to estimate how dwelling limits affect premiums. Remember that home insurance costs are primarily driven by how much dwelling coverage you buy.
MoneyGeek's Recommendation: Buy enough dwelling coverage to cover the cost of rebuilding your home.
Before you ask how much homeowners insurance you need, focus on how much dwelling coverage you need. You don't need to insure the land your property is built on, and you don't need to insure it for the property's market value, so your focus should be on the amount you need to completely rebuild your home in the event of a total loss. Given that you can buy a house in some cities for as little as $40,000 while other places might have little to nothing available under $500,000, the amount of insurance you need depends on your individual home.
The only concern for your insurance company is the replacement cost of your property, which is what it would cost to replace your home due to a total loss. Typically, this is determined by using public data, market research and company-specific algorithms to find how much money you would need to rebuild your home completely.
Your insurance company can help you calculate rebuilding costs. Alternately, if you're looking for independent advice, a professional home appraiser can be valuable in helping to determine the replacement value of your property.
Many factors can impact your home's replacement cost, including your property's age, size, shape and unique features. This means that the height, square footage, building materials, roof slope, framing design, ceiling height, flooring type, heating and plumbing setup and many other features of your home all impact the total replacement cost.
We mentioned above that you purchase insurance based on the cost to rebuild your home, not the purchase price or the amount of your mortgage. While this is true, remember that your replacement cost is an estimate. If the estimate isn't accurate, or if things change over time, your total replacement cost may not be enough to replace your dwelling completely. This is where extended replacement coverage and guaranteed replacement cost come in:
These additional endorsements you can add to your policy protect against inaccurate cost estimates, potentially saving you thousands in the event of a total loss.
Inflation guard coverage is an option that slowly increases your policy's dwelling coverage to account for inflation. This allows your coverage to stay current, preventing you from losing your house in a disaster only to find that your dwelling coverage levels are inadequate for rebuilding.
Homebuyers who want to be sure they are purchasing enough insurance can get an appraisal of their property. The cost of an assessment is typically a few hundred dollars, but it can be worth the additional expense to know you have enough insurance coverage.
MoneyGeek's Recommendation: Buy enough personal property coverage to cover the value of everything you keep in your home.
Your personal property is the stuff you own — your TV, your couch, the books on your shelf, etc. Personal property coverage is included in your home insurance, usually up to 50% of your dwelling replacement cost. Personal property coverage pays out when your property is damaged, or someone robs you. This means it is one of the few sections of your insurance that will pay out even if your dwelling suffers no damage.
When purchasing an insurance plan, do the math to ensure you have enough coverage to replace your personal property. Consider increasing or adding additional coverage (such as scheduled personal property coverage) if you feel 50% of your dwelling coverage won't be enough for your needs.
There are two types of personal property coverage: actual cash value (ACV) and replacement value. ACV coverage takes depreciation into account, meaning if your television gets destroyed, your insurer will reimburse you for what it was worth, not the cost of replacing a new TV. On the other hand, replacement value coverage values your things at the cost of replacing them with new items. These are some scenarios in which you should consider upgrading your personal property coverage:
Consider what kind of personal property coverage best suits your belongings.
Conducting a home inventory helps you determine your personal property coverage limits for homeowners insurance. Here's a guide to help you accurately assess the value of your belongings:
By following these steps, you'll have a detailed inventory that can guide you in selecting sufficient personal property coverage, ensuring adequate protection of your possessions.
MoneyGeek's Recommendation: 20% of your dwelling coverage is the standard for living expenses. That should be sufficient unless you want to purchase more to ensure coverage against the costs of an extended stay elsewhere.
Additional living expense coverage (also known as "loss of use") is the part of your insurance that pays for expenses incurred during a covered loss. For example, additional living expense coverage pays for you to stay at a hotel or rent an apartment temporarily during home repairs. Living expense insurance covers:
While living expense coverage is typically 20% of your dwelling coverage, you may need more than that if you expect significant expenses during an emergency.
MoneyGeek's Recommendation: Buy enough liability insurance to cover the value of your assets.
If someone suffers an injury on your property or their property is damaged because of your negligence, your personal liability coverage would cover the cost of those damages up to your policy limit. Your personal liability policy covers:
Remember that increasing your liability limits by hundreds of thousands per year may only cost a few dollars monthly, making it a valuable addition to your coverage.
Most insurance companies offer a wide variety of additional coverage options because every homeowner needs an insurance policy specific to their situation. Someone living in Houston will want additional flood insurance, while someone living in San Francisco would be wise to purchase additional flood and earthquake coverage. There are many types of supplemental insurance coverages you can buy, including:
Consider if any of these supplementary insurance add-ons particularly apply to your home and location.
To give you an example of how to determine your home insurance needs, the chart below shows what coverage limits we suggest for a home with a replacement value of $350,000. Remember, $350,000 is the cost of rebuilding your dwelling, not the total cost of your mortgage.
Coverage Type | Policy Limits |
|---|---|
Dwelling Coverage: If you experience a covered loss, dwelling coverage is the part of your policy that pays to repair or rebuild the physical structure of your home. The value of your home determines dwelling coverage, separate from the land or other features included in your total mortgage. | $350,000 |
Other Structures Coverage: Other structures are just that — other physical structures on your property. This can include a detached garage, a shed, a fence or any other physical structure separate from your home. | $35,000 (10% of dwelling coverage) |
Loss-of-Use Coverage: Also known as living expense coverage, loss-of-use will pay for expenses incurred due to a covered loss. Covered expenses may include hotel stays while your home is being repaired or eating out because of kitchen repairs. | $70,000 (20% of dwelling coverage) |
Personal Liability Coverage: Your personal liability coverage pays expenses if you are responsible for damages, whether they are property damages or bodily injuries. For example, personal liability coverage will pay for medical expenses if someone slips on your unshoveled sidewalk this winter. | $300,000 |
Medical Payments Coverage: This coverage pays for injuries sustained on your property, whether or not you were at fault. This would cover the cost if someone trips over their feet and breaks a tooth on your property, for example. | $5,000 |
Personal Property: This coverage is typically around 50% of your dwelling coverage. People who need higher levels of coverage can opt to set a higher amount for their personal property coverage to ensure protection in the event of a loss. | $175,000 (50% of dwelling coverage) or replacement cost |
Water Backup Coverage: A standard home or flood policy does not typically include water backup. If your sewer or sump pump clogs and causes water damage to your property, you will need water backup coverage to pay for the damages. | $10,000 |
Ordinance or Law Coverage: As building codes change, homeowners may face unanticipated expenses to bring their property up to code. This additional coverage pays for those unforeseen expenses, and, best of all, your home doesn't have to be damaged to file a claim under this coverage. | $10,000 |
Jewelry and Furs: The sub-limit on personal property coverage means items are covered up to a specific dollar amount — usually $1,000–$2,500, with an overall limit of $5,000. You can increase your per-item sub-limit or add coverage if you have valuable items like jewelry, furs and musical instruments. | $2,500 per item/$5,000 overall limit |
Home insurance costs vary based on various factors, including location, replacement cost coverage, personal coverage and deductible amounts. Choosing higher or lower levels of coverage can impact your rates, just like choosing higher or lower deductibles.
MoneyGeek’s home insurance calculator will give you a ballpark estimate of your cost — it’s free, no personal information required, no spam.
Rates updated:
Jul 26, 2024
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Get multiple premium quotes to ensure you get the best possible rate. Comparing home insurance quotes can help lower your expenses and ensure you have the coverage you need. You can use an online quote tool to get rates from multiple companies in just a few minutes. You can also find our rankings of the best home insurance companies to help guide your purchase.
Homeowners insurance safeguards your home, which could be your biggest financial asset. While you aren’t legally required to have home insurance if you own your house in full, we encourage purchasing homeowners insurance to offset the costs in case of damage or other home issues. Most mortgage lenders will require homeowners insurance, so those who borrowed to finance their home purchase will be mandated to buy it.
There are dozens of ways your house could be damaged or even destroyed, including:
These are just a few of the things that could render your home uninhabitable. Enough insurance can differentiate between a temporary financial emergency and a financial disaster.
You might need more than just home insurance. Note that standard home insurance policies don't cover flood or earthquake damage. You'll have to buy a policy specifically for those perils.
If you have a mortgage on your property, the mortgage company often works directly with your insurance company. Your mortgage company will include the cost of your insurance in your monthly mortgage payment, and they will pass the funds on to your insurer.
Even if you are willing to absorb the cost of any damage to your property, homeowners insurance is an excellent way to cover liability costs. Someone injuring themselves on your property or being bitten by your dog could cost you tens of thousands of dollars or more. Because of these risks, even the wealthiest among us still benefit from a robust home insurance policy.
Before you sit down to get a homeowners insurance quote, you will usually need the following information:
You can get a quote directly from an insurance company or use an online tool to get multiple quotes simultaneously, but either way, you will need the same information.
Navigating the complexities of homeowners insurance can often leave homeowners with key questions about the right level and types of coverage needed to protect their homes and assets. Understanding how much coverage is necessary helps ensure adequate protection without overspending. Below are frequently asked questions that clarify common concerns regarding homeowners insurance.
To adequately protect your home, your insurance should cover the cost to rebuild it at current construction rates, not its market value. Include enough personal property coverage for your belongings, typically 50% to 70% of your dwelling coverage. Also, factor in additional living expenses coverage if you're temporarily unable to live in your home due to covered damage.
Your liability coverage should at least match the total value of your assets to protect against potential lawsuits. Most homeowners choose between $300,000 to $500,000 in liability coverage. Consider an umbrella policy for additional coverage if your assets exceed these limits or if you have higher risk factors at home.
About Rachael Brennan
Rachael Brennan has worked in the insurance industry for more than a decade. She was an auto insurance agent for many years, earning her P&C license in all 50 states. After that, she joined the health insurance industry, earning her life, health and AD&D license. She has since moved on to become a professional writer, using her years of experience in the industry to help consumers better understand their insurance coverage. She has written for Cracked, Glamour, Grok Nation, The Boston Globe and many other publications.
