How Much Homeowners Insurance Do I Need?

Homeowners insurance protects your home, property, and assets if a covered disaster or accident strikes. While you’re not required to hold a policy per most state laws, your mortgage lending company could cancel your loan if you don’t have coverage. 

But how much coverage do you need? 

Key Information

Homeowners Insurance Coverage Limits 

Every insurance company is different, and most offer a range of policy types for their customers. But typically, plans group their coverage into buckets. 

Understanding what they are can help you as you shop for the right plan. This table can help.

Coverage Type	Average Coverage Limit
Primary dwelling (PD)	Varies depending on location, policy type, etc.
Loss of use	30% of PD
Other structures	10% of PD
Personal property	70% of PD
Personal liability	$100,000
regional differences in coverage options and average limits coverage	Varies

Let’s dig deeper into these categories. 

Primary Dwelling

Your primary dwelling coverage (sometimes called structural coverage or dwelling coverage) is the cost required to rebuild or repair your home after a covered event takes place. If you have a mortgage, your lender may require your policy to cover the amount of your loan. This protection ensures the lender isn’t on the hook for a loan on a building that no longer exists.

Your coverage should be tied to how much it would cost to rebuild your home. This price might be higher (or lower) than the market value of your home. 

Loss of Use

Loss of use plans (also called additional living expenses or Coverage D) can help you move forward after a crisis. If a covered event takes place and you must live elsewhere during repairs, loss-of-use policies can help. Coverage can help you pay for things like rent, moving costs, storage, and transportation. 

Most plans cap how much coverage you can use. A typical plan, for example, caps this coverage at 30% of your primary dwelling coverage limit.[2] 

Other Structures 

Garages, sheds, detached offices, and other outbuildings can add value to your estate. But they can’t be covered at a higher rate than your primary building. In a typical Allstate plan, for example, your coverage for other buildings is capped at 10% of the replacement value of your primary dwelling.[3] 

Know that this protection doesn’t extend to the possessions inside these separate structures. That’s covered in the next category. 

Personal Property 

Personal property coverage protects your belongings. Things like computers, phones, bikes, furniture, and jewelry are all protected by these policies. Most plans cap this coverage at about 70% of your dwelling limit.[4] 

Read the details carefully. Some plans will cover the actual cost of replacing your damaged items with new versions. Others factor in depreciation, so you will have to pay the difference between what your item is worth and what a new one will cost. And your plan may exclude some types of damage and loss. 

Personal Liability 

Most homeowners insurance plans offer a rider to protect you if someone is injured on your property or you damage property owned by someone else. If someone mowing your lawn is hurt, or your kids throw a ball through the neighbor’s window, you’re protected. 

The amount of coverage you need can vary dramatically. Your plan may offer a set amount (like $100,000). But if you often have people on your property, or you are concerned about your ability to hurt someone else’s investments, you may need more. 

Umbrella Coverage

If something serious happens to your home and property, you may need more help than your standard policy can provide. Umbrella coverage can help. These add-ons kick in when you’ve exhausted the limits of all other types of coverage. 

You’re not required to get umbrella coverage, and no real limits or caps exist. It depends on your risks, estate size, and more. Regional differences exist in coverage options and average limits.

Factors That Affect How Much Homeowners Insurance You Need

While no one wants to use their homeowners insurance policies, it’s worse to file a claim and find out your insurance policy isn’t large enough to cover your losses. With a little research into the following categories, you can ensure you have what you need if the unthinkable happens. 

Potential for Loss 

More than 32% of homeowners in a recent study said they had been impacted by weather within the last five years.[5] Thunderstorms, flooding, and tornadoes can cause immense damage to your home and property. And your risk of these issues may be higher in some locations than others. 

Your homeowner policy may also protect you in case of theft. In 2021, 5.3% of homes had a claim, and 97.7% of them involved property loss, including theft.[6] If the crime rate in your neighborhood is particularly high, you may need more coverage than someone in a different location. 

Unique Home Attributes

Many home insurance policies cover damage with like-new materials. That could be the wrong approach for your property. For example, if your walls are covered with antique lath-and-plaster details, plain sheetrock replacement may not be enough to satisfy you. 

Older homes often require a delicate touch during restorations. If your property is uniquely detailed or customized, you may need more funds to fix it after a covered event. 

Other unique home attributes to consider include situations like having a house with a pool and free-standing gazebo in an area prone to hurricanes or living in a single-dwelling home with an attached garage in an area that has no external risk factors, such as floods or wildfires. 

Building Costs 

Construction costs vary dramatically from one location to another. If you live in Alaska, Hawaii, and California, you’ll pay the highest construction costs in the nation.[7] And construction backlogs could mean waiting in a rental for long periods while your home is made habitable once more. 

Unforeseen variations could raise your prices, too. For example, the price of iron and steel rose 83% during a 19-month period ending in 2021.[6] If your home is harmed during a supply chain issue, your repairs could cost more. An umbrella policy might protect you if your main policy cannot. 

Additional Structures 

Every outbuilding on your property is a potential risk during an event like a hurricane or wildfire. The more little hot spots you have, the larger your possible losses. 

Insuring all of them could help you get back to normal quickly after an event. But skipping little policies on buildings you could live without (like a falling-down shed) could save you money. 

Personal Possessions

A typical homeowners insurance policy caps coverage for your personal possessions. That cap is closely tied to the overall value of your home. The more expensive your dwelling, the more coverage for possessions you can get. 

But what if you live in a very small home packed tight with expensive artwork, high-tech computers, and designer clothing? What if your possessions are worth more than your home?

In the Northeast, just 39% of homeowners have an inventory of their possessions ready in case of a loss or claim.[5] In the West, just 50% of homeowners do.[5]

If you create an inventory before you buy, you’ll know just how much coverage you need. And you’ll be ready to work with your insurance company if something goes wrong.

Potential Liability 

Every year, about one in every 1,670 homeowners has a claim related to bodily injury or property damage.[6] If you often hire people to work on your property, you might need more liability coverage than someone who never accepts guests. Similarly, if you have active children, you might be more likely to harm someone else’s property than someone who never plays outdoor sports. 

Home Loans 

While a majority of homeowners (88%) have home policies, some do so only because their mortgage providers make them.[5] Every year, they are required to prove that they have insurance to keep their loans open and active. 

Your mortgage provider’s rules might dictate how much coverage you have for both your home and your outbuildings. Violate those guidelines, and you could lose your home outright. 

Is Homeowners Insurance Always Worth It?

For families on a budget, a homeowners insurance policy can seem like an unnecessary expense. For families on low incomes, some government assistance programs exist that could be helpful in affording coverage. When the unthinkable happens, that coverage could help protect you, your home, and everything you own. The peace of mind you purchase with your policy is certainly worth the expense. 

“At lower income levels, homeowners’ insurance may be perceived as a discretionary purchase. Weather does not discriminate by income, and low-income homeowners remain at risk… Logic would suggest that only a small proportion of low-income homeowners could withstand the total loss of their home from an unforeseen weather event without insurance coverage.”

Homeowners Insurance Frequently Asked Questions