Homeowners insurance protects your home, which may be the most expensive thing you ever buy. But it’s important to have enough homeowners’ insurance coverage in a disaster like a fire.
How do you know how much insurance you need for your home? The key is to go through each standard coverage in a policy, change the amounts as needed, and then think about adding extra coverage to fill big holes.
How much insurance should you buy? Should you also buy different types of coverage? The insurance editorial team at Way.com is here to help you find answers. We explain the ins and outs of home insurance so you can feel more in control of your policy and make smart financial decisions.
How to determine your homeowners’ coverage limit?
What is one of the most dangerous things you can do when you buy homeowners insurance? Buying too little. You’re not the only one who might wonder, “How much homeowners insurance do I need?”
If a wildfire burns down your house and you have to rebuild, it would be terrible to find out you don’t have enough homeowners insurance to pay for it. Homeowners insurance covers many things, but it also doesn’t cover some things, like flooding and natural disasters. It’s very important to have enough coverage for your home.
Homeowners’ insurance coverage range
When picking a home insurance policy, you should get enough coverage to protect all of your assets in case your house is destroyed in a natural disaster or a lawsuit is brought against you.
Most insurance policies for homeowners cover four main areas:
- Dwelling coverage: To rebuild your home. Once you know how much coverage you need for your home structure (the “dwelling coverage”), you can use that number to figure out how much coverage you need for other things.
- Personal property coverage: Replace personal property damaged by a covered peril.
- Liability coverage: If someone gets hurt on your property and sues you, this will pay for the damages.
- Additional living expenses (ALE) coverage: Helps pay for costs if you have to move out of your house temporarily.
If the limits of your current policy aren’t enough to cover these costs, you might want to buy more homeowners insurance.
Most home insurance companies have a tool to determine how much it would cost to rebuild your home based on its size, location, interior finishes, and any special features.
The amount of coverage for your personal property is usually between 50 and 70% of the amount of your home. The same goes for your other structures’ coverage and loss of use coverage. Of course, most policies can be changed if you need more coverage, but the automatic levels are a good place to start.
Cost of dwelling coverage
How much coverage you have for your home greatly impacts how much you pay for insurance. A home with a limit of $250,000 costs 37% more to insure than one with a limit of $150,000, and a limit of $350,000 costs 75% more.
Most insurance companies for homeowners want you to have coverage for at least 80% of the cost of rebuilding your home. It’s called the 80/20 rule. When you file a claim, you’ll get less money if you don’t have enough insurance.
Based on factors like building materials used, the location of your home and the labor, the dwelling costs the dwelling coverage costs in 2026 can range anywhere between $1,800 and $4,800 per year. If your dwelling coverage limit is $300,000, the costs can range to $2,500 per year.
Factors influencing how much home insurance coverage you require
When deciding how much home insurance to buy, you may want to take into account a few different things:
Age of the home: Older homes may need different insurance than newer homes because they have features that aren’t common in newer homes.
Size of your home: The size of your home is a major factor in figuring out how much insurance you need. Most of the time, the bigger your home is, the more it will cost to fix or rebuild.
Building codes: These codes may have been different when older homes were built. If the house is damaged, it might need more work to code. This can make a claim more expensive, so that you may need more coverage.
Inflation: Many policies have a clause that automatically raises your coverage limits yearly to keep up with inflation. But if inflation goes up quickly, your current limits might not be enough to cover you, and you might need to change your policy.
Construction costs: The cost of living in different parts of the country affects the cost of building materials and labor. If you live in an area where things are expensive, you may need more coverage to protect your money.
Financial situation and Risk levels: If you have enough money saved to pay for damages out of pocket or if you don’t mind taking more risks, you may choose less coverage than someone in a different financial situation.
Unique needs: Every homeowner has different needs, which could mean they need different insurance. For example, you might want to add scheduled personal property coverage if you have expensive jewelry. Most home insurance policies have several add-ons you can choose from to make your coverage fit your needs.
Create a home inventory
A home inventory can be helpful if you need to file a claim for damage to your personal property. Among these are:
- Names of things and what they are
- Cost to buy or real cash value
- If you have them, the date, place, and receipts
- Each item’s picture
- Estimated cost to replace
A digital home inventory can also make it easier to file a claim. Everything you think is valuable, such as electronics, cash, jewelry, and furniture, should be on the list. You could store your inventory in the cloud, your office, or at a family member’s house.
What is not covered by homeowners insurance?
As a homeowner, many things could go wrong with your house. Home insurance can protect your money in several ways, but a standard policy won’t cover everything. So what is not protected by most homeowners insurance? There are several common things that home insurance doesn’t cover.
For damages that aren’t covered by a standard policy, you might want to buy extra homeowners insurance coverage, such as:
- Flood damage: Standard homeowners’ insurance policies do not cover flood damage. So most of the time, you’ll need to buy a separate flood insurance policy to cover this.
- Earthquake insurance: Even in places with a high risk of earthquakes, most homeowners’ insurance policies do not cover damage caused by earthquakes. But many home insurance companies have separate policies or add-ons for earthquake damage.
- Coverage for sinkholes: Sinkholes are common in many parts of the U.S., but a standard homeowners policy doesn’t cover them. Sinkholes can damage homes, so if you live in an area where they happen often, you should get sinkhole coverage.
- Mine subsidence insurance: When old mines fall apart, they can cause damage similar to sinkholes in some parts of the country.
- Umbrella insurance: Umbrella policies can help pay liability claims after your liability insurance has reached its limit.
- Damage from not taking care of the property: Normal wear and tear and damage that could have been avoided are not covered by a homeowners insurance policy. Keeping your house in good shape can help keep this kind of damage to a minimum.
- Sewer backup: Most home insurance policies don’t include coverage for sewer backup, but you can usually buy it as an add-on. Keeping an eye on your pipes to ensure they don’t back up can also help keep your house safe.
- Priceless jewelry and antiques: Coverage for valuables like jewelry and art can be added to a home insurance policy as an endorsement or floater, but homeowners often think of items like family heirlooms as priceless. As a safety measure, you should keep these things where they won’t get stolen or broken.
- Aggressive dog breeds: Liability coverage for injuries caused by certain dog breeds, like pit bulls, German Shepherds, and Rottweilers, is often not included in home insurance policies. Tell your insurance company if you have a dog.
