How Much Homeowners Insurance Do I Need?

We wish we could give you a simple answer, but the amount of home insurance coverage that you need varies from that of your neighbors. There are multiple factors that go into calculating your homeowners insurance policy, but with this guide, you can get a better idea of how to figure it out for yourself.

What Do You Need Coverage For?

To start the process, you need to figure out what your homeowners insurance policy will cover. In most cases, you need enough coverage for:

  • Rebuilding Your Home
  • Extended Dwellings and Buildings
  • Replacing the Contents of Your Home
  • Legal and Medical Expenses for Injuries Sustained on Your Property
  • Reimbursing Living Expenses that You Incur After Losing Insured Home/Building

What Kind of Coverage Do You Have?

Most homeowners insurance policies are replacement cost insurance by default, but some companies also offer actual cash value insurance (ACV). ACV insurance comes at a lower premium because you get less coverage. You only get reimbursed for the current value of your home and its contents, which is typically less than replacement cost due to depreciation. If you get replacement cost, you will have a higher deductible, but you won’t have to worry about any out-of-pocket expenses when you build or replace items.

Calculating the Amount of Coverage for Your Buildings

There are so many elements that go into building a home, so it can be difficult to calculate the exact replacement cost. However, you can come up with a close estimate when you: 

  1. Multiply the square footage of your home by local construction costs.
  2. Get a second estimate from a free online calculator.
  3. Hire an independent insurance agent to calculate your replacement cost.

It’s important to remember that these estimates could change based on recent changes in the economy, building codes, or your home. If you remodeled a room or added more living space, don’t forget to include it in your calculations. You should also account for any irreplaceable or hard-to-replace features in your home.

Calculating Personal Property Coverage

Once you know how much structural coverage you require, you need to add the cost of replacing your home’s contents. Your personal property is anything that you keep inside your home or buildings. It could include everything from clothes and antiques to cars and furniture. In order to determine the amount of replacement coverage you’ll need, you should keep a running inventory.  

How to Make a Home Inventory

Though it can be a tedious task at first, an inventory can prevent the shock of being underinsured. To start, you can go around all of the rooms in your house taking pictures of your belongings. From there, you should write down every single item—no matter how big or small—because the costs can quickly add up. Once you have a home inventory, you should update it with every purchase. From there, you’ll be able to quickly determine the value of your personal property.

Extended Coverage for Rare and Expensive Items

Many insurance companies put a limit on rare and expensive items. If you have valuable collectibles, art, instruments, designer clothing, or any other expensive items, you should get extra coverage. While you are making your inventory, it is important to make a list of all of your expensive items so that you can ask your insurance agent whether or not they are covered under your current policy.

Adding Liability Coverage

Liability insurance covers the medical costs and lawsuits you might face if someone gets injured on your property. It’s specifically designed to cover people who don’t live in your home. Most policies carry a minimum of $100,000, but we encourage you to get as much as you can afford. $300,000 to $500,000 is a better start.

Request a Car Insurance Quote

Once you have all of the numbers calculated for your structures, personal property, and liability, you can determine the total amount of homeowners insurance coverage that you’ll need. If you ever need any assistance, a third-party insurance agent can guide you through the process. You can then use your coverage amount to collect a homeowners insurance quote before you decide on a policy!