How Much Home Insurance To Buy: An Expert Guide (2024)
To find out how much home insurance to get, multiply your home's cost per square foot by the square feet of the house. How much home insurance is enough depends on your home, but your home insurance coverage should protect the total rebuild cost. To find the lowest home insurance rates and the best home insurance companies, shop around for home insurance quotes with our comparison tool below.
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Shawn Laib
Insurance and Finance Writer
Since graduating from the University of WA with a B.A. in English Literature, Shawn has been professionally writing in the spheres of entertainment, insurance, business, marketing, and politics. He is passionate about using his writing skills and insurance knowledge to educate the general population on everyday issues surrounding these misunderstood topics. His work has been published on SUPERJ...
Insurance and Finance Writer
UPDATED: Jan 10, 2024
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.
UPDATED: Jan 10, 2024
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
When buying home insurance, there are several factors that can impact the amount of coverage to buy. Some of these factors are outside of your control, which makes it all the more important to understand what you’re paying for and why. By understanding your home insurance coverage, you can ensure that you buy only what you need and don’t spend money on unnecessary expenses.
Banks Impact on Home Insurance
One of the first things that will affect your homeowner’s insurance is the lien holder’s interest. Your mortgage company is financially responsible for the house while there is a loan against it, and they will insist on ample insurance coverage until the mortgage has been paid in full. Ask your lien holder what the minimum amount of insurance coverage they require is, and be prepared to keep your policy at or above those limits. Dropping below can cause serious problems between you and your loan company.
Read more: Best Home Insurance for Older Homes
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Coverage Selections
Aside from the lien holder’s requirements, you’ll have some flexibility in choosing what coverages you carry on your homeowner’s policy. You can choose to cover only the dwelling, or include protection for your land, structures and personal belongings. You can also choose whether you want a named-peril policy or one with named exclusions. The first protects you against a handful of specified causes of damage; the second protects your home against all damage not listed as exclusions. The former is cheaper, but the latter provides better protection.
Your insurance company may also give you a choice between three separate coverage levels that are based upon the value of your home:
- Cash-Value Policy – Covers the actual cash value of your house and its belongings after calculating any depreciation.
- Replacement Cost Policy – Covers the cost of your home and belongings without accounting for depreciation, thus allowing you to replace the home in the event of a total loss.
- Guaranteed Replacement Cost Policy – Guarantees the replacement of your home even if it exceeds your policy limits, thus providing inflation-proof protection.
Unsurprisingly, these policies become more expensive as their values increase.
Once you’ve determined the type of coverage you wish to buy, the price of your policy will be calculated based on your home’s value and any discounts you may qualify for. This figure may vary from one organization to the next, so it’s worth comparison shopping for the best deal and the best home insurance company.
Calculate How Much Home Insurance You Need
While there is no perfectly accurate way to determine the rebuild cost of your home, there is a method that can get you pretty close. The equation looks like this:
(Building cost per square foot) x (Square feet of the house) = (Total rebuild cost)
When making this calculation, it is important to talk with experts in your area to get an accurate view of what your building cost per square foot is. Some professionals that could be of assistance include local contractors, real estate appraisers or a local builder’s association.
Once you have a reasonable estimate of building costs per square foot in your area, determining the total amount to rebuild should be pretty easy. When estimating the total you may want to lean towards the higher side in case your policy has to cover additional costs like debris removal. It is always better to be slightly over-insured than under-insured.
Case Studies: Understanding Home Insurance Coverage and Calculating Rebuild Costs
Case Study 1: The Lien Holder’s Impact on Home Insurance
A homeowner named John has a mortgage on his house. His mortgage company requires a minimum amount of insurance coverage on the property. John learns about the importance of maintaining adequate coverage to meet the requirements of the lien holder. Dropping below the minimum coverage can lead to complications with the loan company.
Case Study 2: Choosing Coverage Selections
Sarah is a homeowner who has the flexibility to choose various coverages for her homeowner’s policy. She considers covering only the dwelling or including protection for the land, structures, and personal belongings. She learns about the difference between named-peril and named exclusion policies and the trade-off between affordability and comprehensive protection.
Case Study 3: Determining Coverage Levels
Michael is exploring different coverage levels based on the value of his home. He discovers that home insurance policies vary in price as the coverage value increases. Michael realizes the importance of comparing quotes from multiple insurance companies to find the best deal and the most suitable home insurance company.
Case Study 4: Calculating Rebuild Costs
Emily wants to determine the rebuild cost of her home accurately. She follows a method that involves calculating the building cost per square foot and multiplying it by the square footage of her house. She also seeks advice from local professionals such as contractors, real estate appraisers, and builder’s associations to obtain accurate estimates.
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Frequently Asked Questions
How much home insurance do I need?
The amount of home insurance you need depends on various factors, including the value of your home, the cost to rebuild or repair it, your personal belongings, and your liability risks. It’s generally recommended to have enough coverage to fully rebuild your home and replace your belongings in case of a covered loss.
What does homeowners insurance typically cover?
Homeowners insurance typically provides coverage for your dwelling (the physical structure of your home), other structures on your property (e.g., detached garage), personal property (e.g., furniture, appliances), liability protection (for legal and medical expenses if someone is injured on your property), and additional living expenses if your home becomes temporarily uninhabitable.
How can I determine the replacement cost of my home?
Determining the replacement cost of your home involves considering factors such as the square footage, construction materials, features, and local building costs. You can use online calculators or consult with an insurance agent or appraiser to estimate the replacement cost accurately.
Should I insure my home for its market value or replacement cost?
It’s generally recommended to insure your home for its replacement cost rather than its market value. Market value includes the cost of the land and factors like supply and demand, while replacement cost focuses on the cost to rebuild the structure itself, including materials and labor.
What are policy limits, and how do they affect coverage?
Policy limits refer to the maximum amount an insurance policy will pay for covered losses. It’s crucial to select policy limits that adequately cover the value of your home, personal belongings, and potential liability claims. Review your policy limits periodically to ensure they align with any changes in your home’s value or contents.
Should I consider additional coverage options?
Yes, you may want to consider additional coverage options based on your needs. For example, you can add endorsements or riders to cover specific valuable items like jewelry or artwork. You might also consider flood insurance, earthquake insurance, or sewer backup coverage if you live in areas prone to those risks.
How can I lower my home insurance premiums?
There are several ways to potentially lower your home insurance premiums. You can consider increasing your deductible, bundling your home and auto insurance with the same insurer, installing safety features (such as smoke detectors or a security system), or asking your insurer about available discounts (e.g., for being claims-free or having a home renovation).
What should I do if I experience a loss or damage?
If you experience a loss or damage, contact your insurance company as soon as possible to report the incident and start the claims process. Take photographs or videos of the damage and make a detailed inventory of affected belongings to assist with the claims assessment.
Are you looking for free insurance quotes?
Your one-stop online insurance guide. Get free quotes now!
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Shawn Laib
Insurance and Finance Writer
Since graduating from the University of WA with a B.A. in English Literature, Shawn has been professionally writing in the spheres of entertainment, insurance, business, marketing, and politics. He is passionate about using his writing skills and insurance knowledge to educate the general population on everyday issues surrounding these misunderstood topics. His work has been published on SUPERJ...
Insurance and Finance Writer
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.