How Much Homeowners Insurance Do I Need?

Your home insurance policy can do more than rebuild your house after a covered loss. It can also replace your belongings, help with living expenses if you’re displaced and offer financial protection if you’re liable for someone else’s injuries. In short, your home insurance policy is there to help with the costs you can’t shoulder on your own — which is why it’s so important to have the right amount of coverage. Bankrate’s team of licensed agents is here to help guide you on how to build the right policy for your needs. 

How to determine how much homeowners insurance you need

One of the most important parts of your home insurance policy is your dwelling, or Coverage A, limit. This is how much replacement cost coverage you have for your home’s structure. Having adequate coverage is crucial to ensure you will not face a shortfall when suffering a catastrophic property loss.

Several other coverages — like ones for detached structures, personal property and additional living expenses — are often calculated as percentages of your dwelling limit, so it’s important to choose the right amount. Ideally, your dwelling limit is high enough to fully rebuild your home if it’s destroyed. You can use a home insurance calculator to estimate this figure, or the Insurance Information Institute (Triple-I) also suggests multiplying your home’s square footage by local, per-square-foot construction costs. Additionally, your insurance agent can help you calculate this.

Another key figure of your home insurance policy is your personal liability, or Coverage E, limit. Your personal liability insurance can help if you or someone in your household is found legally liable for someone else’s injuries or damage to their property. Your liability coverage extends beyond the home; if you or a member accidentally damages a neighbor’s home or property, you may be able to file a claim with your home insurance company.  

Choosing the right amount of dwelling and liability coverage are good places to start building your policy — but there are other factors you should consider.  

1. Assess your home and roof 

The first step in choosing how much homeowners insurance you need is 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 cash value and replacement cost

Home insurance policies have a few different ways of compensating you for damage: actual cash value (ACV) and replacement cost value (RCV). 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 means that depreciation will be factored into 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. Additionally, many insurers only offer ACV coverage on roofs and provide a depreciation schedule even for newly installed roofs.

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 RCV 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, talk to your agent.

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. Importantly, the cost to rebuild your home probably isn’t the same as what you paid for it. 

One aspect of building costs to consider is whether your home meets current building codes, especially if it’s more than 30 years old. 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 or guests, 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 guests incur up to your policy limit — regardless of fault. Or, if you have young kids, you may want to consider higher liability limits. Remember, your liability protection extends outside the home; if your kids damage a neighbor’s property, your liability coverage may help pay for those damages. 

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 in 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. You usually have between 20 and 30 percent of your dwelling limit earmarked for additional living expenses. 

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 storing it in 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 inventory app recommendations 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.

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.

7. Determine coverage for detached structures 

Your home insurance policy offers financial protection for the detached structures on your property, like a detached garage, shed or gazebo. Your insurance company usually caps coverage for these other structures at 10 percent of your dwelling limit — if you have a $300,000 policy, you have $30,000 allotted for the other structures on your property. Depending on what’s in your yard, this may or may not offer sufficient coverage.

8. Factor in your personal finances

Personal finances are typically a 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. This is often referred to as “self-insuring,” and could help you find a more affordable policy, especially if you’re in a state with higher home insurance costs. 

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.

9. Consider additional coverage

Home insurance policies are customizable; you can purchase add-ons, called “endorsements”, for broader coverage. While these will usually raise the cost of your policy, the added financial protection may be worth it for some homeowners. 

Endorsements vary among providers; some home insurance providers may offer a wide 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.

10. 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 with your insurance agent 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?

What’s excluded from your home insurance policy is just as important as what’s included. Making assumptions about your coverage can be a costly mistake. For instance, although flooding is the most common natural disaster, it’s not covered by your home insurance policy. Earthquakes also won’t be covered, even if you’re in California or along a fault line. 

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 dozens of 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. Personal umbrella policies typically start at a $1,000,000 limit and provide additional liability coverage on top of your home and auto policy limits.
• 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.

There are some things that your insurance company doesn’t usually cover, like aggressive dog breeds. If you own a dog breed that insurers determine to be high risk, like a pit bull, German Shepherd or Rottweiler, it’s possible that dog bites will be excluded from your liability coverage. However, some states prohibit insurers from excluding certain dog breeds. 

Protecting against inflation and rising costs

Nationally, the cost of rebuilding, including materials and labor, rose by 5.2 percent from April 2024 to April 2025 — an increase from the 4.6 percent increase seen from April 2023 to April 2024. And a study by Triple-I showed replacement costs spiked a cumulative 55 percent from 2019 to 2022 (nearly four times the Consumer Price Index) due to supply chain disruption, escalating costs of construction materials and labor shortages. If your home insurance coverage limits have not changed in recent years, you could be underinsured.

Ideally, your home insurance policy offers you enough coverage to rebuild your home from the ground up. As the cost of reconstruction goes up, your home insurance coverage limits should rise in tandem. Many homeowners don’t realize that, in most cases, your home insurance company won’t write you a check if your home is destroyed; you have to rebuild, and if your policy won’t cover the cost of doing so, you’d need to dip into your own pockets to finance the construction.

Frequently asked questions

• How much does homeowners insurance cost?
  

  As of June 2025, home insurance costs an average of $2,341 per year for a $300,000 policy. However, this is a statistical average, not an exact quote. Home insurance quotes are highly personalized; personal factors like your credit history, age, marital status and claims history, plus your home’s factors, such as when the home was built, proximity to a fire station, etc. all play a part in setting your rate.

• How do I get home insurance quotes?
  

  Most insurance professionals suggest shopping around for new quotes 30 to 60 days before your policy renews. You can do this multiple ways: visiting carrier websites directly, calling an independent agent or contacting an insurance broker. If you are a seasoned homeowner with a solid grasp of what you need from your policy, you may want to shop independently. Or, if you’re a newer homeowner (or need a little extra guidance), then contacting a licensed professional may be a better route. It may be good practice to compare home insurance quotes from several companies, so you can review each carrier’s rates, coverage choices, discounts and third-party ratings.

• Is hazard insurance the same as homeowners insurance?
  

  Hazard insurance usually refers to the part of your home insurance policy that covers your home’s physical structure. The term “hazard insurance” is more commonly used by mortgage companies, rather than insurance professionals. That’s because hazard insurance technically protects your mortgage company’s financial interest in your home (its physical structure), while home insurance mostly protects the homeowner by including personal property coverage, liability insurance and medical payments coverage. If you have a home insurance policy, you already have hazard insurance.

• Can I have too much home insurance?
  

  It’s possible to set your coverage limits too high, especially if you consider your home’s market value over its replacement cost. Real estate market value is not how replacement cost value is determined by insurers. Your dwelling coverage limit should be a reflection of what it costs to rebuild your home, not buy it. If you live in a tight real estate market, it’s possible that you paid much more for your home than it costs to build, and you could wind up paying a higher insurance premium than you need to.

• Do I have to buy homeowners insurance?
  

  It depends. If you have a mortgage on your home, you will likely be required to purchase home insurance as a condition of your loan. If your home is in a FEMA-designated flood zone, you may also be required to carry flood insurance. Even if you own your home outright, having home insurance is a smart way to protect your finances. Think about it this way: it’s usually cheaper to pay a home insurance premium than it is to completely rebuild your home out of pocket after a disaster.