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Your home is probably the most valuable asset you own, so it’s important to protect it from all of life’s uncertainties. From vandalism to natural disasters, you don’t want to be stuck with the bill if your home gets damaged – or worse, destroyed completely. That means having adequate home insurance coverage is crucial.

Key Takeaways

  • Dwelling coverage should be at least 80% of the property’s replacement cost, though 100% is best.
  • Experts recommend liability coverage of at least $300,000 with the addition of an umbrella policy if additional protection is needed.
  • Keep an inventory of all personal property and its fair market value to determine how much personal property coverage you need.
  • Coverage for additional living expenses is usually 20 to 30% of your dwelling coverage limit.
  • If someone is injured on your property, medical payment coverage will usually pay between $1,000 and $5,000.

How much homeowners insurance do I need

When determining how much home insurance you need, there are a few questions you can ask yourself:

  • How much would it cost to completely rebuild the property from the ground up?
  • Do you have any valuables in the home that need to be insured, too?
  • Do you live in an area that’s prone to natural disasters, such as floods or earthquakes?

Once you know the answers to these questions, you can select which types and levels of coverage you need. In general, experts recommend the following:

  • Dwelling insurance
  • Liability insurance
  • Property insurance
  • Additional living expense or loss of use coverage
  • Medical payments coverage

Here’s a closer look at what these recommended home insurance coverage categories entail and how to determine the level you need.

How do I determine how much home insurance coverage I need?

Homeowners insurance protects you from financial loss if your home is damaged or destroyed. It can cover the cost of repairs or even replacing the entire property, depending on the situation. Some common types of events covered by homeowners insurance include fire and smoke, falling objects, lightning, theft, and vandalism.

On the other hand, not all types of damage are covered by your policy. Home insurance exclusions include flooding, earthquake, sewer backup, and maintenance damage, which you likely won’t be able to file a claim for.

It’s important to be sure you have as much home insurance coverage as reasonably possible. Below is a closer look at the major types of home insurance and recommended coverage amounts.

How much dwelling coverage do I need?

The most robust portion of your home insurance coverage is likely the dwelling coverage. “This is the amount the insurance company would pay to rebuild the structure of your home in case of complete destruction,” said John Bodrozic, co-founder of home management tool Homezada.

Dwelling coverage insures all of the structural elements of your home, plus anything that’s attached to it, such as the foundation, frame, roof, plumbing, built-in fixtures and appliances, and even in-ground pools. It does not cover other items that may be on your property but aren’t attached to it. That includes sheds, detached garages, above-ground pools, and fencing.

“In terms of how much is needed, every carrier will run a replacement cost coverage estimator, which uses the latest data to determine the cost to rebuild that particular home,” said Stacey Giulianti, chief legal officer for Florida Peninsula Insurance Co. This amount is not the same as your mortgage amount or most recent appraisal, but the actual home rebuild cost, including construction, materials, and labor to rebuild your same home at today’s prices. This may be more than the market value or what you could sell the property for.

If your home is destroyed, the insurance company may only cover the actual cash value of the property, which is the depreciated value. This is often calculated by subtracting a certain percentage for every year since the home was built.

However, it may cover the full replacement cost value, which doesn’t factor in depreciation. That hasn’t always been standard, though most major insurers offer this added coverage. Usually, you need to buy enough insurance to cover 80% of the property’s replacement cost, though 100% is best.

Expect to pay about 10% more to add this coverage. And keep in mind that there is usually a limit to full replacement cost, which means you’ll have to pay out of pocket for any expenses beyond that cap.

“[These values] will be determined by the insurance company, and are not generally subject to change,” Giulianti said. That is unless you’ve customized the home or it’s much higher quality than similarly situated dwellings, he noted.

If you’ve done major remodelling or upgrades, you may be under-insured within the dwelling portion of your policy, Bodrozic added. For example, if you invested $50,000 in a kitchen remodel, you should let your insurer know so the coverage amount can be increased.

How much liability coverage should I have?

Liability coverage provides a defense and indemnity funds if another person gets injured by the negligence of the policyholder (not including auto negligence),” Giulianti said. For instance, if someone tripped on one of your porch steps and broke their arm, liability insurance would cover the legal fees if they decided to sue you.

Property damage is also covered under liability insurance, as well as injury or damage caused by pets, such as a dog bite (though some policies exclude dog bites). And it extends beyond your four walls – if you cause damage or injury away from home, liability insurance covers you as long as there was no vehicle involved.

Liability limits vary, although they are typically between $100,000 or $300,000 in coverage, Giulianti noted. If you want to up that coverage, you can consider adding an umbrella or excess liability policy to provide additional protection beyond what’s in the standard policy.

This coverage kicks in after you’ve exhausted the liability coverage from your underlying policy, and usually offers a broader range of coverage. Typically, these are sold in increments of $1 million, up to $5 million.

Personal property coverage recommendations

In addition to the structure itself, you’ll also want to ensure the contents inside your property are protected, too. This is one area where it’s easy to be under-insured, according to Bodrozic. To be sure your valuable belongings are protected, it’s important to have adequate personal property coverage.

“This is the amount that the insurance company would pay if all your personal property were destroyed,” he explained. That includes high-value items and collectibles such as jewelry, power tools, art, etc.

The cost to replace these items may be hard to estimate. Bodrozic recommends that homeowners to take an inventory of these items, and take photos and video to document their ownership. If you have particularly valuable property, like rare artwork or specialized equipment, it’s a good idea to buy extra insurance for these items. “It is usually a very small increase, but you get peace of mind that your high-value items are covered,” he said.

Additional living expense or loss of use coverage

If your home is completely destroyed by a fire or tornado, you could be out of a home for months – maybe even years. Loss of use coverage, also known as additional living expenses (ALE) insurance, pays for your housing and living expenses (within reason) while you wait for your home to be rebuilt. Usually, this coverage is expressed as a percent of the dwelling coverage limit. Typically, it’s around 20-30%. So, if your home is covered up to $250,000, you could have 20% ALE coverage up to $50,000.

Medical payments coverage

This optional homeowners insurance coverage pays for medical expenses incurred due to an injury on your property, regardless of who’s fault it was. This differs from liability insurance, which only kicks in if you were the one at fault. Plus, medical payment coverage only covers bodily injury and not property damage. It’s designed to cover small claims amounts of around $1,000 to $5,000.

Do I need flood, earthquake, natural disaster insurance and if so, how much?

Certain natural disasters aren’t covered by your traditional homeowners, such as earthquakes and floods. You can purchase separate policies for this specialized coverage, though not everyone needs to do that.

Take flooding: If your home and belongings get damaged by water from a busted pipe inside your house, your homeowners policy should kick in. But if you live in an area that’s prone to storms and flooding, you might want to purchase a separate flood insurance policy.

According to FEMA, just one inch of water can cause $25,000 in damage. You can purchase coverage through the government-sponsored National Flood Insurance Program or a private insurer. NFIP plans cover up to $250,000 for the property and $100,000 for the contents, which may or may not be enough.

While not as common as flooding, earthquakes are another natural disaster you may want to buy added protection from. If you live in an earthquake-prone state such as California or Nevada, it could be a good idea.

Are there other types of home insurance coverage I might need?

Depending on your financial and living situation, there may be other specific situations you might want to insure against. Some additional riders and endorsements you can consider purchasing include:

Water backup coverage

Since most homeowners policies don’t cover this type of damage, you may want to purchase additional coverage against water damage due to sewer backups.

Business property coverage

If you run a home-based business, you may want to purchase separate insurance for your business-related property, such as office supplies or inventory.

Identity theft restoration coverage

Getting your identity stolen can cost quite a bit of time and money. This optional coverage pays you for lost wages, legal fees, mail fees, and more.

How to increase homeowners insurance coverage limits?

As time passes, there may be times when your standard homeowners insurance coverage isn’t enough. Here are a few ways to build in some protection for life and economical changes.

Extended and guaranteed replacement cost

If you’re concerned that your dwelling insurance limit isn’t high enough, there’s additional coverage you can buy. Extended replacement coverage will pay to rebuild your house even when the total cost exceeds the actual cash value. There is still usually a maximum coverage amount, but it’s around 50% more than the original coverage amount. There’s also guaranteed replacement coverage, which pays to rebuild your home according to the previous size and specifications, no matter the cost.

Inflation guard

This is an endorsement you can add to your homeowners insurance policy that gradually and continually increases your coverage limits by a certain percentage over a certain period of time. Generally, the rate of the limit increase is meant to match the rate of inflation – about 2%-5% annually.

Ordinance coverage

Also known as law coverage, building ordinance coverage is another endorsement that reimburses you for the cost of rebuilding or repairing your property if changes to ordinances or laws cause those costs to increase.

Frequently asked questions

How much homeowners insurance do I need for a condo?

Also known as HO-6 insurance, this type of coverage is specifically designed for owners of co-ops and condominiums. It covers liability, personal property, and improvements to the owner’s unit (the condo association usually covers the outside of the structure). The amount of coverage you need will depend on what the master policy covers. You may need extra coverage if your HOA policy is for “bare walls” or “studs in.”

How much homeowners insurance do I need for a townhouse?

Though you need a special kind of homeowners insurance for a condo, townhouses can sometimes be insured by traditional homeowners insurance (HO-3). However, if your townhome is under the contract of an HOA, you will need an HO-6 or “walls in” policy that works in tandem with the master policy. Again, the amount of coverage you need will depend on the cost to repair and replace anything inside.

What is the 80% rule in homeowners insurance?

This is a general insurance rule that you should have enough dwelling coverage to cover at least 80% of your home’s rebuild or replacement cost.

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Casey Bond
Contributing Researcher


Casey Bond is a seasoned writer and editor who has covered personal finance for more than a decade. Previously, she reported on money, home and living for HuffPost. She has held editorial management roles at Student Loan Hero and GOBankingRates. Her work has appeared in Forbes,, Yahoo! Finance, U.S. News & World Report, and more. In 2019, she won a NEFE Excellence in Personal Finance Reporting Award. She is also a Certified Personal Finance Counselor.