How Much Homeowners Insurance Do You Need?

Homeowners insurance will help you protect and care for your property. Here’s how to ensure you have the right amount of coverage.

Written by Hilary Collins / May 13, 2022

Quick Bites

  • Homeowners insurance will protect you if something happens to your home, like a burglary or storm damage.
  • You should purchase enough coverage to rebuild your house in case the worst happens.
  • You will need to buy separate, specialized coverage for things like floods or earthquakes.
  • Once you have the right amount of homeowners insurance, you can rest easy knowing that you’re ready for whatever happens.

Congratulations on your new home! Now that you’re a homeowner, you need to ensure that your property is protected. Bad things happen—including storms, fires, dog bites and burglaries—but with the right amount of homeowners insurance you will be ready for whatever comes.

The right amount of homeowners insurance coverage will pay out enough for you to rebuild your home from scratch if it comes to that. And while that amount of coverage isn’t cheap, it will allow you to get your home back if something terrible happens.

You will also need specialized coverage as basic homeowners insurance doesn’t cover things such as floods, earthquakes or sinkholes. You should also purchase additional insurance in some situations, such as if you have a dog, fine art or a trampoline. Here’s your guide to the ins and outs of purchasing homeowners insurance.

Inside this article

  1. Why you need home insurance
  2. How much coverage is needed
  3. What impacts cost of coverage
  4. Creating a home inventory

Why you need homeowners insurance

According to the Insurance Information Institute, a nonprofit organization dedicated to helping people make better decisions about insurance, standard homeowners insurance offers four basic protections: coverage for the structure of your home, coverage for your personal belongings, liability protection and additional living expenses.[1] 

A basic homeowners policy will cover repairing or rebuilding your home and its contents from damage by fire, hail, hurricane and other disasters explicitly listed in your policy. However, most policies will not cover damage from a flood, earthquake or normal wear and tear.

Additionally, liability protection will protect you from damage you, your family members or pets cause to others. Say your dog bites a neighbor—this protection will cover the medical expenses and lawsuits. And finally, additional living expense coverage means that if you have to stay in a hotel or rent a car while damages to your home are repaired, your insurance will cover those costs within certain limits.

Tip: A trampoline may not seem like a major part of your home, but consider additional insurance coverage for trampolines. According to 2012 research from the American Academy of Pediatrics, there are roughly 100,000 trampoline-related accidents per year.[2]

According to the Insurance Information Institute, the average homeowners or renters policy cost $1,272 a year in 2019.[3] While that’s not a small amount, it comes out to about $100 a month for protecting your home and giving you peace of mind.

How to determine how much coverage you need

Now to estimate exactly how much coverage you need to purchase. 

“The simplest way to figure out how much insurance you need is to estimate the cost to rebuild the structure in today’s dollars,” says Tim Wipert, owner of Chicago Insurance Professionals, a Chicago-based insurance agency. “This may or may not match the appraised value, purchase price or market value.”

Many major insurance providers (including Liberty Mutual and Progressive) offer online tools to help you calculate that cost and receive a quote. You can also consult with an insurance agent for personalized guidance.  

There are also plenty of additional coverage options and riders you can add to your basic coverage if needed. This will be specific to your situation and home. 

“In the Midwest, the most common additions are generally water/sewer backup coverage, buried line coverage and coverage for any high-value items, like rings or watches,” Wipert explains.

Tip: While a basic policy will cover your possessions, there will be a dollar limit per item. For very expensive items such as jewelry, furs or collectibles, consider special coverage or a rider.

Depending on your location and situation, you might consider adding:

  • Flood coverage

  • Earthquake coverage

  • Additional liability insurance if you own a pool

  • Additional coverage if you live close to a coastline to cover natural disasters including wind damage, storms and hurricanes

  • Additional coverage for high-value items like fine jewelry

  • Additional coverage for water/sewer backup

What impacts the cost of coverage

The cost of your homeowners insurance policy will be based on your needs, the location of your home, the condition of your home and considerations such as age, quality of construction and distance to the closest fire department.[4]

The size of your home is a major factor, as are the elements that compose it. For instance, it may be more expensive to insure plaster walls and hardwood floors compared to drywall and laminate because they are more expensive to replace if damaged. Similarly, older plumbing and electric systems can drive up the cost of insurance given that they are potentially unsafe and more likely to fail.  

While the majority of the cost will be based on your home’s features, some of it can be impacted by your financial history. If you have good credit, you may receive a discount on your homeowners insurance, so take steps to improve your credit score if needed so you can pocket those savings. And of course, take a look at multiple insurance providers to see who offers the best rate.

Creating a home inventory

To ensure all your property is covered, you should take an inventory of all of your belongings, including vehicles, jewelry and electronics. Wipert recommends taking photos or video of your home and possessions to assist in any claims. There are also apps that can help you with the process, such as Sortly or Blue Plum Home Inventory.

For smaller, lower-cost items: Writing down the number and a brief description can be sufficient, i.e., “six coffee mugs” or “three pairs of sneakers.” 

For larger purchases such as major appliances, electronics or high-cost items: Jot down or take a picture of the serial number and hold on to the receipt. 

Don’t forget any items you’re storing elsewhere as those are also covered under most homeowners policies.

Tip: Make sure your home inventory is somewhere safe and backed up digitally. It won’t be any help to you if it disappears with the rest of your house in a natural disaster!

For a home inventory to be helpful in getting the right coverage, you need it to be both accurate and up-to-date. The Insurance Information Institute recommends getting into the habit of logging new purchases into inventory as you make them, making it easier to reference the necessary details and paperwork before they’re lost or forgotten.[5]

Getting the right amount of homeowners insurance takes some legwork and will cost you, but it will pay off big when lightning strikes—literally or figuratively.

Article Sources
  1. “What Is Covered by Standard Homeowners Insurance?” The Insurance Information Institute, https://www.iii.org/article/what-covered-standard-homeowners-policy.
  2. “Trampoline Safety in Childhood and Adolescence,” The American Academy of Pediatrics, https://publications.aap.org/pediatrics/article/130/4/774/30158/Trampoline-Safety-in-Childhood-and-Adolescence.
  3. “Facts and Statistics: Homeowners and Renters Insurance,” The Insurance Information Institute, https://www.iii.org/fact-statistic/facts-statistics-homeowners-and-renters-insurance.
  4. “Home Buyer’s Insurance Guide,” The Insurance Information Institute, https://www.iii.org/article/home-buyers-insurance-guide.
  5. “How to Create a Home Inventory,” The Insurance Information Institute, https://www.iii.org/article/how-create-home-inventory.

About the Author

Hilary Collins

Hilary Collins

Hilary is an experienced finance writer with a passion for turning complicated topics into readable stories with real-world takeaways.

Full bio

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