How much homeowners insurance do you need?

Key points

• A standard home insurance policy contains valuable coverage types, including dwelling, other structures, personal property, liability and additional living expenses. 
• You should have enough dwelling coverage to rebuild your house, based on the current labor and construction costs in your area.
• You should have enough liability coverage to fully protect the total value of your assets.  
• Depending on where you live, consider buying flood insurance or earthquake insurance, as these problems aren’t covered by a standard homeowners insurance policy.

How much home insurance you need depends on several factors, including the rebuild value of your house, the value of your personal belongings and the total value of your assets.  

Understanding the different coverage components of a standard homeowners insurance policy — as well as other coverage options available — can help you make an informed and confident decision about how much insurance you need.

How much dwelling coverage do I need?

You need enough dwelling coverage to cover the cost of rebuilding your house, so you should take into account local construction and material costs. 

Dwelling coverage pays to repair your house and its attached structures, such as a garage or deck, from damage caused by problems listed in your policy, like fires and windstorms. 

It’s important to insure your house at its replacement cost value, which is how much it would cost to rebuild your house from the ground up back to its prior state after a covered disaster. Your house’s square footage, age and roof will affect its replacement cost. 

Replacement cost coverage provides adequate support in most cases, but may not be enough if material costs skyrocket following a local disaster, or labor is at a premium due to shortages. 

You may want to add extra coverage through extended or guaranteed replacement cost coverage. 

How to get more dwelling coverage 

If you want more dwelling coverage, ask your insurer if they offer the following coverages.

• Extended replacement cost coverage: This gives you an extra cushion for rising costs.  It provides an additional percentage, usually 20% or more than the set rate, depending on the insurance company. If your dwelling coverage is $300,000 and extended replacement coverage provides an additional 25%, you could receive up to $375,000 total for rebuilding costs (minus your deductible).
• Guaranteed replacement cost coverage: This ensures you can rebuild your home to its current state, so you don’t have to worry about inflation and rising construction costs leaving you underinsured. It functions similarly to extended replacement coverage but sets no cap on how much you receive — the policy pays any qualifying expenses associated with rebuilding a structure. 

How much other structures coverage do I need?

Other structures coverage is typically set at 10% of your dwelling coverage limit, but if you need more coverage you may be able to increase this limit, depending on your insurance company.  

Other structures coverage pays for repairs to detached structures on your property, like a gazebo, shed and fence. 

How much personal property coverage do I need?

Personal property coverage is typically set at 50% to 70% of your dwelling coverage amount, but you may need more coverage depending on the value of your belongings. 

Personal property coverage pays to repair or replace your belongings after a problem covered by your policy. Your personal property can include furniture, clothing, electronics, books, sporting equipment, pots and pans and even the pictures on your wall.

Creating a home inventory can help you determine how much your personal property is worth and how much coverage you need. Most home insurance policies pay out for your belongings’ actual cash value — which means deprecation is factored into the claim payout — unless you pay for additional coverage.

How to get more personal property coverage 

If you want to upgrade your personal property coverage, consider these options.

• Replacement cost coverage. This upgrade from actual cost value coverage pays to repair or replace your belongings at today’s prices. Replacement cost coverage does not take depreciation into account. 
• Scheduled personal property coverage. Insurers often set limits for theft. Your policy might limit a claim for stolen jewelry to $1,500, for instance. If you want more coverage, you can “schedule” certain high-value items so they are insured for their appraised value.

How much additional living expenses do I need?

Additional living expenses (ALE) coverage is typically set at 20% of your dwelling coverage limit, but insurers may set different limits, including how long the coverage lasts or how much monetary support it provides. 

ALE coverage pays for extra living expenses you accrue while your home is being repaired due to a claim. It can cover short-term housing, restaurant meals, pet boarding and other expenses associated with displacement.

How much liability coverage do I need?

It’s a good idea to have enough liability coverage to cover the total value of your assets, or what you could lose in a lawsuit. 

Liability insurance pays for someone else’s damaged property or medical expenses if they’re injured and you’re at fault, like if your dog bites someone at the park or a guest slips on your icy walkway. 

Liability insurance also pays for your legal defense and any judgments or settlements — up to your policy’s coverage limits — if you’re taken to court over the matter. 

You can typically get $100,000 to $300,000 in liability coverage through your homeowners insurance policy but may want more.

How to get more liability coverage

If you want more liability insurance than the maximum amount available through your home insurance, consider purchasing umbrella insurance. 

Umbrella insurance is secondary liability coverage that’s sold in increments of $1 million to $10 million depending on the insurance company. 

Once you hit the limit of liability coverage in your home insurance policy, your umbrella insurance kicks in. 

With umbrella insurance, you can properly cover your net worth.

Medical payments to others coverage

Medical payments to others coverage can pay for minor injuries to other people, regardless of who was at fault. 

This coverage is usually sold in small amounts, up to $5,000. Larger claims would fall under your liability insurance. 

Other coverages you may need

A standard homeowners insurance policy does not cover floods, earthquakes or windstorms. Depending on where you live, you may consider buying additional coverage. 

Flood insurance

According to FEMA, an inch of floodwater can result in up to $25,000 in damage. If you want to be reimbursed for flood damage to your house and belongings, you’ll need a flood insurance policy. 

There is a waiting period, so you’ll want to buy flood insurance before you need it. You can visit FloodSmart.gov for a list of insurers that sell flood insurance from the National Flood Insurance Program (NFIP), which is managed by FEMA. 

Flood insurance policies can cover your house structure, attached structures and personal property, including your belongings, electrical and plumbing systems, appliances, permanently installed flooring and cabinetry, foundation walls, staircases, detached garages and solar energy equipment. 

Flood insurance through the NFIP caps dwelling coverage to $250,000 and contents coverage at $100,000.

Earthquake insurance

Home insurance doesn’t cover earthquake damage, but you can buy earthquake insurance. Some insurers may offer earthquake coverage as an add on to your homeowners policy for an additional fee. In California, homeowners insurance companies are required to offer you the option to purchase an earthquake insurance policy — but it’s not mandatory for you to buy it.

Windstorm insurance

While most homeowners insurance covers standard wind damage, policies for homeowners living in areas that receive higher levels of damage may not. You may need wind coverage if you live in coastal areas that are prone to higher levels of wind damage due to hurricanes, tropical storms and tornadoes. 

In Texas, the Texas Windstorm Insurance Association provides coverage for residents in the 14 counties bordering the Gulf of Mexico whose standard policies do not cover windstorm damage. These separate policies offer protection for damages caused by windstorms, hail and wind-driven rain.

Insurance coverage for disasters: Is tornado damage covered?

What types of damage does homeowners insurance cover?

A standard homeowners insurance policy, called an HO-3, covers your house structure for any problem except those listed as exclusions in your policy. 

Your personal property is covered if the damage is caused by 16 specific problems, or perils. 

An HO-3 policy covers personal property for these perils: 

• Fire and lightning.
• Windstorm and hail.
• Explosions.
• Riot or civil commotion.
• Damage caused by aircraft, including self-propelled missiles and spacecraft.
• Damage caused by vehicles (not your own).
• Smoke.
• Vandalism or malicious mischief.
• Theft and home break-in.
• Falling objects.
• Weight of ice, snow or sleet.
• Accidental discharge or overflow of water or steam.
• Sudden and accidental tearing apart, cracking, burning or bulging.
• Freezing.
• Sudden and accidental damage from artificially generated electrical current, like a power surge.
• Volcanic eruption.

Damage caused by these problems is not covered: 

• Earthquakes, landslides or sinkholes.
• Floods.
• Water damage from sewer or drain backups.
• Nuclear hazards.
• Damages resulting from neglect or failure to conduct routine maintenance.
• Government property seizures.
• Smog, dry rot, dust and corrosion.
• Insect or vermin damage.
• Damages caused by pets or other animals you own.
• Shrinking, settling or expansion of footings, foundations, floors, roofs, ceilings or walkways.

How much is homeowners insurance? 

The average cost of home insurance with dwelling coverage of $350,000 is $1,582 a year, according to our analysis of home insurance rates from top U.S. insurers. 

How much you pay for homeowners insurance will depend on factors such as the insurance company, the coverage amounts and deductible you choose, your ZIP code, claims history, home condition and age, safety features and any discounts you qualify for. 

Average annual cost of home insurance

How much you pay for homeowners insurance will depend on factors such as the insurance company, the coverage amounts and deductible you choose, your ZIP code, claims history, home condition and age, safety features and any discounts you qualify for.

Choosing a deductible

You choose a deductible amount when you purchase your home insurance policy and it can typically be $500, $1,000 or $2,000. 

When you file a property damage claim, your deductible will be subtracted from your overall claim payout. 

The higher the deductible you choose, the cheaper your home insurance rates will be, but the less money you will receive when you file a claim.

How much home insurance do you need FAQs

Do I need homeowners insurance?

Although no state requires homeowners insurance by law, your mortgage lender will likely require it in order to protect its investment. If you purchase your house with cash or pay off your mortgage, no law stops you from canceling your homeowners insurance. 

For many, however, a house is their biggest investment and largest asset, which makes it worthy of the financial protection home insurance can provide. Covering your house, other structures and personal belongings — and having adequate liability insurance — could help prevent financial ruin.

What is extended replacement cost?

Extended replacement cost is optional coverage that gives you an extra monetary cushion when it comes to rebuilding your house. An extended replacement cost policy might provide 25% extra over your dwelling coverage amountUnder a standard homeowners policy, you receive a set amount to rebuild your home after a covered disaster — regardless of whether or not that amount sufficiently covers rebuild costs. 

Any expenses beyond the policy limit must be paid out of pocket. With extended replacement cost coverage, your insurer provides a set percentage above your coverage limit to help with increased expenses. 

If you insured your home for $400,000 with a 30% extended replacement endorsement, for example, your insurance company would pay up to $120,000 extra to cover rebuilding costs

What is guaranteed replacement cost?

Guaranteed replacement cost coverage takes extended replacement a step further by setting no limit on how much coverage is provided to rebuild your house to its original specifications. 

Guaranteed replacement cost will not pay for expansions or upgrades, and it may not be possible for an older home with irreplaceable historic architectural details. 

This optional coverage is more expensive, but some homeowners find the extra layer of protection it provides invaluable.