Key takeaways

  • Your home's size, age and features, as well as replacement cost for your belongings, impact how much coverage you need.
  • Keeping a digital home inventory can help determine how much coverage you need and make the claims process smoother.
  • There are different types of coverage — such as ACV, replacement cost and additional endorsements — that can be added to a policy.

Home insurance is meant to help minimize the financial impact of costly, unexpected damage to your home. When thinking through how much home insurance you need, it’s important to know there are different types of homeowners insurance policies, coverage types and even exclusions to consider before purchasing coverage. To help you better navigate the home insurance landscape, Bankrate’s editorial team is here to break down the ins and outs.

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How to determine how much homeowners insurance you need

Determining the proper amount of coverage for your home insurance policy can be daunting. But rest assured — choosing home insurance coverage amounts may be easier than you think. Keep in mind, though, that the coverage types and levels each homeowner needs will vary significantly based on their unique situation.

Generally, home insurance companies have a tool that will calculate the rebuilding cost of your home based on details like its location and size, interior finishes and custom features (if any). Once your dwelling amount — the amount of coverage you’ll need for the structure of your home — is determined, that number will serve as the basis for the levels of several other coverage types.

For example, your personal property coverage is usually set automatically, typically between 50 percent to 70 percent of your dwelling amount. The same goes for your other structures coverage and loss of use coverage, for which coverage percentages are generally set automatically based on the amount of dwelling coverage you need. You can usually adjust the policy if you need more coverage, but the automatic levels serve as a starting point.

1. Assess your home

The first step in choosing how much homeowners insurance you need is usually doing a full assessment of your home. Insurance companies have their own metrics for assessing your home’s value and potential risk, but as an owner, it’s generally a good idea to have an overview of your home and what you need covered before shopping around for quotes.

Some standard factors to take into consideration include the size, age and features of your home, as well as the age of your roof. You may also want to do a full assessment of your valuables and who uses your home (factors we will go into in more detail below).

2. Know the difference between actual value and replacement cost

Home insurance policies have a few different ways of compensating you for damage: actual cash value and replacement cost value. You may have the option to choose between these settlement types, or you may automatically be given one or the other. Understanding them is important, though, as it can help you set realistic expectations should you need to file a claim.

Actual cash value, also called ACV, means that depreciation will be taken out of a claim settlement. For example, if you have ACV coverage for personal property and your 15-year-old television is damaged in a covered loss, your home insurer will pay you the actual value of your television rather than what it would cost to buy a new one.

For more robust coverage, you may be able to choose replacement cost. This settlement type would pay you the cost to replace your television, even though a new TV likely costs more than what your 15-year-old one is worth. Both ACV and replacement cost can apply to your home’s structure, your personal property or both. If you aren’t sure what coverage is best for you or which settlement option is included in your existing policy, it may be helpful to talk to your agent.

Insurance companies set sub-limits for certain types of personal property. For example, a policy with $100,000 in personal property coverage may only pay a maximum of $2,000 for jewelry losses. If you have expensive personal belongings, you may consider adding valuable items coverage or scheduled personal property coverage.

3. Research local building costs

You purchase homeowners insurance to prepare for damage or loss, so you should know how much it will cost to repair or replace your house. Research how much building supplies and labor will cost to restore your house to its current state or build an equivalent new home. Factors that impact the amount of coverage your house needs include the number of bathrooms it has, materials used in its construction and its special features. For instance, if your living room features imported custom tiling, you might need higher coverage levels to protect it. Understanding these factors could help you decide if a company’s calculation of your home’s replacement value is too high or too low.

One aspect of building costs to consider is whether your home meets current building codes. Typically, homes that are not up to code cost more to rebuild. If your home does not meet current building codes, you may want to consider adding an ordinance or law endorsement to your home insurance policy. Following a covered loss, ordinance or law coverage can help pay for the additional costs of bringing your home up to code.

4. Consider how you use your home

How you use your home can help you determine the amount of personal liability, medical payments and umbrella insurance you may need. For example, if you often host parties and get-togethers for friends and family, you may want to consider a higher liability limit and possibly even an umbrella policy to protect you in case someone is injured as a result of your negligence. If you have a swing set or pool (especially those with a diving board), you may want to increase your medical payments coverage — which pays for medical costs to guests up to your policy limit regardless of fault.

5. Research rental rates in your area

If your home sustains major damage, you could spend weeks or months living in temporary housing while it’s repaired. This is why it may be a good idea to find out how much it will cost for you and your family to rent a home or apartment in your area, or live at a local hotel. Homeowners who live in expensive housing markets, such as San Francisco or New York City, may need more additional living expenses coverage — also called loss of use coverage — than what a standard policy includes.

6. Take stock of your personal belongings

If you need to file a claim for damage to your personal property, a home inventory can be a helpful tool. This includes:

  • Name and description of items
  • Purchase cost or actual cash value
  • Date and place of purchase and receipts, if available
  • Photos of each item
  • Estimated replacement cost

Having a digital home inventory can also help to make the claim process smoother. The list should have everything that you consider valuable, including electronics, cash, jewelry and furniture. Consider using online cloud storage for your inventory or store it at another location like your office or a family member’s house. That way, if you do sustain damage to your home, the list will not be damaged as well. You can also ask your home insurer for recommendations of inventory apps to make the process easier.

Determining the value and replacement cost of your belongings takes time and should be given the proper thought. You can replace items such as modern sofas and coffee tables with relative ease, but possessions such as fine art and family heirlooms are often irreplaceable.

Homeowners insurance policies frequently have set limits on the amount of included coverage for individual items such as electronics and artwork. If you own a lot of valuable items, you might consider increasing your policy’s limits or purchasing additional coverage for specific possessions in the form of an endorsement or floater.

7. Factor in your personal finances

Personal finances are a typically key factor in determining how much you can afford to pay out of pocket to rebuild your home or replace personal belongings. Keep in mind that while most homeowners insurance policies include a provision that automatically increases your coverage limits each year to keep up with inflation, if inflation rises rapidly, your current limits may not be sufficient to properly cover you, and you may need to adjust your policy.

Most insurance experts agree that it is best to carry enough coverage to rebuild your dwelling and replace personal items. However, some homeowners have ample savings and may prefer to cover more costs out-of-pocket in case of damage to their home or property in exchange for lower rates on their insurance.

You can typically lower your home insurance rate by increasing your deductible. But be aware that if a disaster strikes, you will have to pay more using your own funds. How much you should insure your home for comes down to risk. If you do not carry enough homeowners coverage, a major loss caused by a fire, storm or other event could severely impact your finances.

8. Consider additional coverage

Even with robust home insurance, like an HO-5 policy, you may still have gaps in your coverage. For added layers of protection, you might want to take a look at the different home insurance endorsements an insurer offers. Endorsements, also called riders or add-ons, are optional additions to your policy that add or extend coverage for certain items or perils.

Endorsements vary among providers; some home insurance providers may offer a broad selection, while others may be more limited when it comes to additional coverage. Additionally, what some insurers offer as an endorsement may be what other insurers include as standard in their policies.

Some popular home insurance endorsements are:

  • Service line coverage
  • Identity theft coverage
  • Inflation guard coverage
  • Equipment breakdown coverage

Be sure to read your home insurance policy carefully before you start looking at endorsements. And, keep in mind that policy add-ons will likely increase your premium.

9. Revisit your homeowners policy annually

Personal factors that affect your coverage and premium rates change, so your policy might need to change, too. You may also want to update your inventory of personal belongings, especially if you’ve made big purchases or downsized since you took out the policy. Establishing time for an annual review is a good time to look at any endorsements you’re paying for. If your situation has changed and you no longer need the additional coverage — or if you need new coverage types — you might want to adjust your policy.

What is not covered in a standard homeowners insurance policy?

As a homeowner, several mishaps could impact your house. While home insurance can protect your finances against a variety of situations, a standard policy does not cover everything. In fact, there are several common home insurance exclusions. For the damage not covered by a standard policy, you may want to consider purchasing additional coverage, including:

  • Flood insurance: Standard homeowners policies do not include flood coverage. Generally, you will need to purchase a separate flood insurance policy for this coverage. Flood insurance is offered through the National Flood Insurance Program, administered by the Federal Emergency Management Agency, as well as some private insurers.
  • Earthquake insurance: Most homeowners insurance policies do not cover damages caused by earthquakes, even in high-risk areas. However, many home insurers offer separate policies or homeowners insurance endorsements for earthquake damage. In California, this coverage is offered through the California Earthquake Authority.
  • Sinkhole coverage: Sinkholes occur in many regions of the U.S. but are not covered by a standard homeowners policy. Sinkholes can cause extensive damage to homes, so sinkhole coverage is important to have if your area is prone to this hazard.
  • Mine subsidence insurance: In some areas of the country, sinkhole-like damage can be caused when abandoned mines collapse. This is called mine subsidence, and you’ll need an endorsement on your home insurance policy in order for related damage to be covered.
  • Umbrella insurance: Umbrella policies may help pay liability claims after your personal liability insurance reaches its limit. For example, if a court awards an injured person $500,000 after sustaining an injury on your property and the liability limit on your home is only $300,000, your umbrella policy could pay the difference up to the umbrella policy limit.
  • Sewer backup coverage: Although sewer backup coverage is not part of a standard home insurance policy, it can usually be purchased as an endorsement. Performing preventative checks to protect your house from backed-up pipes may also be helpful.
  • Priceless jewelry and antiques coverage: While coverage for valuables like jewelry and art is typically included in a standard homeowners policy, there are usually limits as to what an insurance company will pay out for these items in case of a covered peril. Homeowners with extensive collections of valuables may want to purchase additional add-on coverage to ensure their items are financially protected.
  • Aggressive dog breed insurance: Home insurance policies often exclude liability coverage for injuries caused by certain dog breeds, such as pit bulls, German shepherds or Rottweilers. If you have a dog, let your insurance company know. If they exclude coverage for your dog’s breed, it may be prudent to seek out a home insurer that offers coverage.

Frequently asked questions

    • The average cost of homeowners insurance nationwide is $1,687 per year for $250,000 in dwelling coverage as of January 2024, according to Bankrate’s analysis of average rate data from Quadrant Information Services. However, your insurance premium will likely vary depending on a number of factors, like the coverage options you choose, your location and the size and condition of your home. The best way to find the cheapest home insurance may be to shop around and compare quotes from several different companies. When calculating your home insurance costs and reviewing quotes, make sure you are comparing the same coverage amounts and types to determine which company offers the right coverage for your needs at the best price.
    • If you’re asking yourself how much to insure your house for, keep in mind that the amount will vary from homeowner to homeowner. You can use an online calculator from your insurance provider or consult a licensed independent insurance agent for guidance. To get an idea of how much insurance you need, you might assess your home’s value and consider how you use it. Then, you may want to create an inventory of your personal belongings to ensure you have enough coverage in the event of a loss.


      If all of this seems overwhelming, keep in mind that most personal property policies are automatically set between 50 and 70 percent of your dwelling amount.
    • You can often get home insurance quotes online, but talking to an agent by phone or in an office may be a better idea. That way, you can discuss your situation with a licensed professional and get some guidance on how much coverage to purchase, as well as what endorsements fit your situation. You’ll need your name, date of birth and possibly your Social Security number, as well as information about your house, including the year it was built and the age of the roof. It may be a good practice to compare home insurance quotes from several companies, so you can review each carrier’s rates, coverage choices, discounts and third-party scores.
    • Yes, home insurance covers damage to your personal property — usually in the same way it covers your dwelling and other structures. While standard HO-3 policies are considered open peril or all risk coverage, personal property is named peril coverage and claims are typically paid on an actual cash value basis. Homeowners can purchase endorsements to upgrade the coverage to replacement cost. If you are looking for open perils coverage for contents, then an HO-5 policy is worth considering. Typically, there are 16 named perils that your contents are covered from:
      • Fire or lightning
      • Windstorm or hail
      • Explosion
      • Riot or civil commotion
      • Aircraft
      • Vehicles
      • Smoke
      • Vandalism
      • Theft
      • Volcanic eruption
      • Falling object
      • Weight of ice, snow or sleet
      • Accidental water overflow or steam
      • Sudden and accidental tearing apart, cracking, burning or bulging of certain household systems
    • Personal property insurance is a certain percentage of Coverage A, or dwelling coverage. Usually, the industry standard is 50 percent of the dwelling coverage, but the amount can vary between providers, and homeowners have the option to purchase increased limits. To determine how much coverage you need, take an inventory of your belongings, especially items with higher value like jewelry, electronics and collectibles. Once you understand what you have and its value, you can decide if the predetermined limits on your policy offer adequate coverage.
    • The term “hazard insurance” refers to the part of your home insurance policy that covers your home’s structure. Hazard coverage can help pay to repair or replace your home if it sustains damage caused by a covered peril such as a fire or storm. Most standard home insurance policies do not cover losses caused by earthquakes or floods. However, some insurance companies offer earthquake and flood endorsements or standalone policies. You can also purchase flood insurance through the National Flood Insurance Program.
    • While you are not legally required by your state to carry homeowners insurance, almost any mortgage lender you work with will typically require you to obtain a homeowners insurance policy to protect against financial losses to the property. In general, most lenders will require you to carry enough homeowners insurance to cover the total loss of the home. But even if your home is paid off, it’s typically still a good idea to have homeowners insurance coverage in order to protect your finances. Having a homeowners policy in place can help to protect you financially if your home is damaged or destroyed in a catastrophic incident that is covered by your policy.