How Much Homeowners Insurance Do I Need?

In case of disaster, you will want your homeowners insurance to cover the costs of rebuilding your home and replacing your belongings, and to help with temporary living arrangements if your home is unfit for living. Your homeowners insurance should also protect your financial assets in the event of liability to others.

Danielle R.

Published on December 12, 2020

Homeowners insurance does not have to be complicated. The main components of a homeowners insurance policy all do one thing: protect you, your loved ones and your assets. Figuring out how much homeowners insurance you need is a simple process.

Key Takeaways

Determine how much dwelling coverage you need

Dwelling, or the building portion of your home, has a specific estimated replacement cost: it is the amount of money it would take to rebuild your home in the event of a total loss. This is not the same thing as market value, which is the price your home could sell for in the market right now. 

It is essential to be aware that market value is typically higher than estimated replacement costs because it includes the land and buyer interest fluctuations. Since land is not replaceable by an insurance policy, it is never covered by homeowners insurance or included in the estimated replacement cost.

The estimated replacement cost of your home is based on your home’s location, structure, features and other details. Everything that is built into your home is accounted for. Granite countertops or a new roof can all affect how much your estimated replacement cost is. By inputting the detail of your home, the calculation for estimated replacement cost is quickly and accurately determined.

Determine how much personal property coverage you need

You need to estimate the cost of replacing all your belongings. Usually, it is calculated as a percentage of your home’s estimated replacement cost. 

Personal property is generally considered to be around 80% of your home’s estimated replacement cost. So, if you owned a home worth $120,000 with an estimated replacement cost of $100,00, it would be calculated that all of the belongings inside your home would be worth $80,000. This would include clothes, food in your refrigerator, and furniture— almost anything that is not attached to your home’s structure, such as appliances.

For renters insurance policies, it is possible to customize the policy based on the state and worth of your individual items – this is due to that fact you won’t have an estimated replacement cost of the house. However, do not try to cut down on the items you own in order to save money on home insurance premium. In the event of a total loss, you will only be covered up to the amount stated on your policy in a rental or owned home.

If you own rare or expensive items, like jewelry, furs or expensive sports equipment, they might not be covered under your homeowners insurance policy and you’ll need to get additional coverage. Make your inventory and write down the estimated replacement costs of those items. Talk to your insurance agent to understand if you need an additional policy specifically for them.

Determine how much liability coverage you need

Liability is different than estimated replacement cost and personal property because it is less tangible. A good rule of thumb, though, is that you need enough personal liability to cover you and your family’s assets in the event of a lawsuit. This would include the value of your home and any additional financial assets you have, such as stocks, retirement accounts, cash, your car, or an owned business.

At the very minimum, you should have more personal liability than your home. Starting with the estimated replacement cost, try to tally up how much your personal assets are worth so you can appropriately protect your home and financial stability.

Talk to Your Agent

If you have more questions about this process, reach out to your agent for more information.