How Much Homeowners Insurance Do I Need?

Most people who own their house know having homeowners insurance is important. If you’ve taken on a mortgage, you’re probably required to have it.

But do you have enough coverage?

A policy isn’t helpful if you’re left with a huge bill when disaster strikes. And, unlike car insurance, there are no state requirements for minimum coverage on your home.

You should have enough insurance to rebuild your home, replace any belongings, pay for living expenses if you’ve been displaced and cover damages caused to others.

How much is that? CNBC Select explains how to adequately protect your property, your possessions and your family.

Dwelling coverage is the foundation for homeowners insurance. It pays for rebuilding or repairing your home, including the house’s physical structure, and any permanent fixtures, appliances and attached structures.

Typically, your insurance company will provide an estimate for the cost of rebuilding your home based on its size, location, special features and other factors. Other kinds of coverage — such as for personal property, liability and additional living expenses — are usually a percentage of this base amount.

The best homeowners insurance companies have a long history, a strong record of customer satisfaction and the financial strength to pay out if the unthinkable happens. We rated Nationwide the best carrier overall. It’s been in business since 1926 and offers numerous discounts, including for bundling coverage.

Hippo is also tops for discounts, with lower premiums available for activating smart home devices, new homeowners, renewing your policy and even being part of a qualifying homeowners association.

Even if you don’t have expensive artwork or a wine cellar full of prized vintages, you probably have items that would be costly to replace, like a laptop or jewelry.

This is where personal property coverage comes in — and having enough is key.  

To see how much you need, tally up the total monetary value of your belongings. A video walkthrough of your home will help give you an idea — and create a record to refer to later if you need to file a claim.  

You’ll also need to decide between covering the actual cash value or the replacement cost value of your belongings. Premiums for actual cash value policies are lower, but you’ll only get the depreciated value of the lost item. Replacement cost coverage is pricier, but you’re reimbursed for the cost of a brand-new substitute. Given how quickly home appliances and personal electronics depreciate, it can be a worthwhile investment.

Named the best for covering high-value assets by CNBC Select, Chubb offers competitive replacement cost coverage, as well as a complimentary home risk consultation.

The typical home insurance policy has personal property coverage that pays between 50% and 70% of the dwelling coverage.  So, if you have a homeowner’s policy for $250,000, you’ll receive between $125,000 and $175,000 to repair and replace your belongings.

If that’s not enough, you’ll need to increase coverage accordingly.

In addition, there are limits on coverage for certain individual items — like jewelry, which is typically capped at $1,500. If you have an engagement ring or other pieces worth more, consider a floater policy or even a separate jewelry insurance policy.

Jewelers Mutual offers affordable coverage that not only pays for damage or theft but for regular maintenance and repairs.  

Liability coverage provides protection in case you, a household member or pet are held responsible for someone being injured on your property or for damaging someone else’s property.

Lawsuits can be costly, so it’s recommended to have personal liability coverage that’s equivalent to your net worth.  

Most homeowners insurance policies provide $100,000 in liability coverage, though some go up to $500,000. If your assets are worth more than that, or you’re in a position that exposes you to more risk, consider an additional umbrella policy.

Umbrella policies typically require a minimum of $300,000 of liability coverage, but our top pick, Travelers, has products with up to $10 million in umbrella insurance coverage. Its policies also cover legal fees, damages outside the U.S. and those not covered by a standard liability policy — including libel, slander, defamation of character and invasion of privacy. 

If your family has to relocate while your home is being repaired, additional living expenses (also known as “loss of use”) coverage pays for expenses like hotel rooms, laundry, meals and storage.

The amount of additional living expense coverage is typically 30% of dwelling coverage, according to the International Risk Management Institute. Most insurers will limit policyholders to 12 months of additional living expenses coverage, though some offer up to 24 months.

If you’re concerned you don’t have enough, some carriers will allow you to increase the amount. You may also be able to choose to be reimbursed the “actual loss sustained,” with no cap on coverage.

You should also review whether some other common policy add-ons are needed and whether the standard coverage will serve your needs.

Other structures coverage. If you have additional structures on your property — like a fence, toolshed or detached garage — your policy needs to include other structures coverage, also referred to as Coverage B. Coverage for other structures is usually 10% of your dwelling coverage.

Inflation guard clause. This option automatically increases your coverage amount at each renewal to account for the increased costs of repairing or rebuilding. While some companies only apply an inflation guard to dwelling coverage, others make it available for all types of coverage.

Extended replacement cost. Another safeguard against inflation, this boosts your dwelling coverage by between 10% to 50%. The price of this add-on varies but is typically an extra $25 to $50 per year. If you live in a region that is prone to natural disasters, extended replacement cost is worth considering.

Equipment breakdown coverage. If an appliance or smart home system is damaged, this add-on coverage can pay for the cost of repairs or replacements. It doesn’t cover normal wear and tear, however.  

Service line coverage. Homeowners are responsible for pipes and wiring running into their property. This add-on covers repairs caused by wear and tear, freezing, electrical malfunction, root and tree invasion and other issues.

To know if you have the right amount of homeowners insurance, start by getting an estimate on rebuilding your home. From there, look at the value of your possessions, how much it would cost to live somewhere else and what you might pay if someone was hurt in your home.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every insurance review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of insurance products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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