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How Much Homeowners Insurance Do I Need?

How much homeowners insurance you need depends on the  specific details of your property, such as its location and your financial situation. It also relies on the value of your home and belongings to best calculate the amount of coverage that would best serve your goals. Each insurance company writes homeowners policies slightly different from the next, but it helps to understand a few core pillars of homeowners policies so you can decide how much homeowners insurance you need.

What Does Homeowners Insurance Coverage Do?

Homeowners insurance provides protection against your policy’s covered perils, which often includes common causes of damage like fire, storms, vandalism, and theft. For example, if your home were to experience water damage from a burst pipe, fire or electrical issues, or wind damage to your roof, most standard homeowners insurance policies would step in to help pay for the cost of repairs. 

How Homeowners Insurance Works

A homeowners insurance policy is broken down into sections that outlines specific coverage against potential problems that your home could face, also known as perils. Different coverage types have their own deductibles and limits. For example, dwelling coverage within a standard homeowners insurance policy specifically covers damage done to the structure of home and anything attached to the home, such as attached garages and the home itself. Your dwelling coverage may have a different deductible and maximum payout limit than your policy’s personal property coverage, which specifically covers the items within your home should it be damaged by a covered peril or stolen.

If you have a mortgage on your home, your lender always require homeowners insurance so that if your home is severely damaged or lost in a fire, flood, or other covered peril, your lender’s investment in your home is protected.

How to Calculate Your Homeowners Insurance Coverage Amount

Overall, your policy can only cover your home for up to its replacement value, or what it would costs to replace the home in the event of a total loss. To estimate this amount and what amount of coverage would actually make sense for your home, consider the following: 

  • The type of coverage you want, such as whether you prefer replacement value or actual cash value for your coverages
  • How much dwelling, property, and liability coverage you need
  • Your policy deductible, which is the amount of money you pay in the event of an insurance claim before your policy begins paying
  • The amount of monthly premium you can comfortably afford

What Are Policy Limits?

Your homeowners insurance will only pay for a covered loss up to the maximum allowed limit based on your policy. Each coverage type would have its own limit. For example, your dwelling coverage limit may be $200,000 while your liability coverage may be $100,000.

This means that if you had a claim that falls under your dwelling coverage, your insurer would pay up to $200,000 after you pay your claim deductible. You would pay for anything beyond that limit out of pocket. Similarly, if you had a claim that falls under your liability coverage, your insurer would pay up to $100,000, and you would be responsible for anything that exceeds that amount. It is important to make sure that your policy meets your real needs for that reason.

Understanding Dwelling Coverage

Typical Coverage Amount: If you choose replacement cost coverage, this provides enough insurance to fully rebuild your home in the event of a total loss. The typical coverage amount is your entire home’s worth, as determined by a third-party appraiser, or your stated home value.

Dwelling coverage protects the actual structure of your home, such as its walls, roof, and foundations. It generally covers the following perils:

  • Fire and smoke damage that occurs from a kitchen, electrical fire, or more
  • Water damage from a “sudden and accidental” burst pipe or leak. Slow leaks, on the other hand, are usually not covered as they are not considered sudden and may indicate a maintenance issue instead.
  • Vandalism
  • Wind and hail damage to a roof or home siding
  • Property damaged by falling tree limbs or similar incidents

What Dwelling Coverage Does Not Include

Dwelling coverage typically does not cover the following:

  • General maintenance: Any issues that are a matter of general maintenance and upkeep, such as if you need work done on an aging roof that was not damaged by a covered peril.
  • Negligence: If you do not keep up with necessary repairs to your home and appliances, insurance companies consider may consider certain losses a result of “negligence,” and thus not covered.
  • Mold: In most cases, insurance companies consider mold as a result of negligence because it does not appear suddenly. However, some insurers offer a riders or endorsements for mold coverage. 
  • Home renovations: If you’re remodeling or renovating your home and cause damage, it will not be eligible for dwelling insurance coverage.

Understanding Other Structures Coverage

Typical Coverage Amount: Other structures provides coverage, usually up to 10% of the dwelling limit. So if the insured has a $200,000 coverage A (dwelling limit), the other structures limit would be $20,000.

Other structures coverage provides protection for damage that occurs to stand-alone structures on your property besides your primary place of dwelling. This includes fences, sheds, detached garages, docks, and detached mother-in-law suites. Like with dwelling coverage, only damage caused by covered perils are eligible for claims.

What Other Structures Coverage Does Not Include

As with dwelling coverage, other structures coverage does not provide coverage for claims based on maintenance, negligence, or damage sustained during renovation. For example, if you have a pool in your backyard that is covered under other structures portion of your policy, damage to the pool’s pump that occurs as the result of improper pool care would not be covered. 

Understanding Personal Property Coverage

Typical Coverage Amount: Highly variable based on your inventory of personal property

Personal property coverage can be the most variable of all coverages in a standard homeowners insurance policy because it depends on what you own. Many insurance companies recommend policyholders to create a detailed inventory of everything they own to more accurately estimate your coverage needs. Personal property includes anything you own that is inside your home and is not part of the structure itself, such as furniture, appliances, clothing, and instruments.

Covered perils for property damage include damage or loss of your items due to theft or typically any perils also covered under your dwelling insurance, such as storm damage and fire. However, policies have a maximum limit for personal property coverage. If you have rare or otherwise valuable possessions, like collectibles or fine jewelry, you may want to consider adding a scheduled personal property endorsement or rider, which could allow greater coverage.

What Personal Property Coverage Does Not Include

Personal property coverage does not include damage that you caused to your own belongings, such as if you plugged too many things into a power strip and caused failure, or if you dropped something and caused it to break. It also does not typically cover the full value of items like fine art or fine jewelry. To ensure your high-value items are fully covered, consider a scheduled property rider.

Understanding Personal Liability Coverage

Typical Coverage Amount: In most cases, personal liability coverage provides around $100,000 to $500,000 in coverage.

Personal liability coverage provides you with protection anytime you are negligent for a loss, such as if a visitor injures themselves on your driveway or if you have a pet that bites or scratches someone — even if that pet is not on your property when the damage occurs. For example, if your dog escaped from your yard and bit someone several blocks from your home, your personal liability coverage would cover it. This coverage helps pay for any medical care needed, and can also cover legal representation if you are taken to court over the incident. 

When determining how much liability coverage you should have, consider whether you have an increased risk of liability. For example, you may be at more risk if your home is in a highly trafficked area, if you have a pet who is regularly in contact with visitors, or if you have inherently hazardous features in your home like a pool or trampoline that guests may use.

What Personal Liability Coverage Does Not Include

Personal liability coverage only applies to non-resident visitors, meaning it does not provide a payout for injuries sustained by any residents living in your home, such as your spouse, housemate, or other live-in family member. In those cases, the individual’s health insurance policy would be a better option for healthcare coverage. 

Personal liability insurance only covers accidental injuries, even if that injury is from maintenance negligence. For example, you would be covered if you did not fix an uneven driveway and a visitor trips and injures themselves as a result. However, it will not cover intentional acts of harm, such as assault and battery.

Understanding Loss of Use Coverage

Typical Coverage Amount: Loss of use coverage typically provides coverage of up to 20% of the dwelling limit.

Loss of use coverage provides coverage in case you cannot use your home while it’s being repaired following an insurance claim. This coverage reimburses expenses that exceed what you would normally spend if your home were not temporarily uninhabitable. For example, if your home’s roof was so severely damaged that it must be repaired before it is safe to move back in, loss of use coverage could help pay for the costs associated with the temporary relocation. This could include motel or hotel stays, cost of laundry, and cost of dining out if you cannot eat at home.

However, all policies have limitations on what will be covered, so consult your policy carefully to ensure your loss of use coverage extends to the things you intend to get reimbursed.

What Loss of Use Coverage Does Not Include

Loss of use does not cover any expenses you were already paying before your insurance claim, such as your mortgage or use of a dry cleaning service if you were already using it prior to your home becoming uninhabitable. It also will not cover things that go beyond what you would normally spend. For example, if you typically spend about $300 a week feeding your family, your loss of use coverage would likely not cover meals and food that exceed that amount each week.

Other Types of Coverage to Consider

Standard homeowners policies provide a wide net of coverages, but your individual needs and location may warrant additional protection. Riders and endorsements can add more coverage to your standard policy. Some of the most common options include:

  • Scheduled personal property: If you have one or more high-value items, you may want to specifically insure that item so that you may have higher limits than your personal property coverage limits would allow. For example, if you have family heirlooms or collectibles in your home, scheduled personal property riders could provide protection for them. This would also cover your items on an “all risk” basis, meaning that it will cover it for anything that could potentially happen as long as the event is not specifically excluded.
  • Flood or earthquake insurance: Standard homeowners insurance policies exclude flood and earthquake damage from their covered perils, but those living in areas at risk for these events may want to consider purchasing protection separately. These coverages are often offered as stand-alone policies, though some insurers may offer them as endorsements to a standard homeowners policy.
  • Home business insurance: Many standard home insurance policies exclude items like files and professional equipment for home-based businesses. However, with more people working from home and creating valuable home offices, a home business endorsement can offer additional protection.
  • Umbrella insurance: Umbrella insurance gives you additional liability limits, increasing the protection you have beyond the normal percentages of your dwelling coverage . This coverage is often a separate policy, as opposed to a rider.