How Much Homeowners Insurance Do I Need?

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A typical home insurance policy protects your home, your belongings and the people on your property in the event of a disaster. Events like lightning strikes, vandalism and fires might seem unlikely, but the last thing you want is to find out you don’t have enough coverage when you need it.

To determine how much home insurance you need, it's important to ask yourself the following questions:

  1. How much would it cost to rebuild my home? (dwelling coverage) 
  2. How much would it cost to replace my personal belongings? (personal property coverage) 
  3. How much would injuries on my property cost? (liability coverage) 
  4. How much would it cost to live somewhere else temporarily and maintain my quality of life? (additional living expense coverage)

Below, we how to answer these questions to determine how much coverage you really need. 

1. How much dwelling coverage do I need?

Dwelling coverage allows you to rebuild your home and other structures (like garages, sheds, fences, porches and decks) in the event of a disaster. 

  • How much you need: Many companies require you to have dwelling insurance that covers 100% of your property’s replacement cost. At the very least, your dwelling insurance should cover 80% of your property’s replacement cost. Otherwise, your policy might not pay for all of your rebuilding expenses. 
  • How to calculate replacement cost: Your home’s replacement cost is not the same as its current market value, which depends on the real estate market. The replacement cost can be lower or higher than its market value because it depends on a number of factors, such as local construction costs and availability of materials, the age and style of your home, the number of rooms, improvements previously made to your home, updates to city ordinances and other factors. 

As a quick way to calculate your replacement cost, you can multiply the square footage of your home by local construction costs per square foot (which can be found on construction websites). However, you should speak to a Hippo expert to answer specific questions about your home’s replacement cost. 

Many policies require dwelling insurance equal to 100% of your property’s replacement cost.

It’s also important to consider additional coverage options. New city building codes can affect your home’s replacement cost significantly. For example, there might be new requirements for electrical wiring, plumbing systems or building materials. Those new requirements might mean it would be more expensive to repair or rebuild your home. Building codes coverage, which is also known as ordinance or law coverage, takes care of these increased costs.

Or, you might consider adding extended replacement cost coverage in which your insurer pays the costs of repairing or rebuilding your home, even if those costs exceed the limits in your standard dwelling coverage. This can be especially useful if, after a disaster, there’s increased demand for construction materials and labor that makes these inputs more expensive and raises the cost of rebuilding your home. 

Finally, if you plan to live in your home for awhile, you might consider an inflation guard, which takes into account the increased costs of construction over the years and adjusts your policy accordingly. (Hippo recalculates your home’s full rebuilding cost every year to make sure that your coverage remains accurate.) 

2. How much personal property coverage do I need?

Personal property coverage protects your belongings (on or off your property) against certain common disasters like lightning, fires, windstorms, explosions, theft and vandalism, among others. How much coverage you need depends on the value of your personal items. 

How much you need: As a good baseline, most homeowners insurance policies include personal property coverage that is about 50–70% of their dwelling coverage, according to the Insurance Information Institute. You might opt for more coverage if you have particularly valuable items in your house. 

Before deciding how much coverage you need, be sure to take inventory of your belongings and estimate their worth. This can be a challenging process, but you should work methodically. Go room by room and take pictures or videos of everything. Note the makes and models of technology. Make copies of any receipts that you have. 

Also pay special attention to expensive items, like laptops, smartphones or jewelry. Policies typically set limits on what will be paid for these items if they’re destroyed, so you might consider extending your limits. 

Typical personal property coverage is 50–70% of your dwelling coverage.

Additionally, knowing that your items depreciate in value over time, you should think about whether you want to insure your items for their actual cash values (which can be less than you bought them for) or for their replacement values (which can be more than you bought them for). Replacement cost coverage, while more expensive, might be a worthwhile investment.  

3. How much liability coverage do I need?

Liability coverage shields you from medical costs, lost wages, legal fees, funeral costs and other costs associated with injuries on your property. 

How much you need: Typical plans provide at least $100,000 of liability coverage, but it’s recommended that you purchase as much coverage as you need to fit your current needs. 

If you spend quite a bit of time at home (for example, if you work from home more often than you go into the office) or if you’re more likely to get sued (for example, if you work in a high-visibility career), you might consider umbrella coverage, which provides liability coverage beyond your standard policy.  

Typical home insurance plans provide at least $100,000 of liability coverage.

4. How much additional living expense coverage do I need?

Additional living expense coverage picks up many of the costs you might face if you can’t live in your home while it’s being rebuilt after a disaster. 

For example, if you can no longer cook in your kitchen because it was destroyed, you can use this coverage to pay the costs of going out to eat. Or, if you can’t sleep in your bedroom, you can use it to pay for your hotel stay. Sometimes, it also covers the costs of storing your belongings, moving and even doing laundry. 

How much you need: It’s common for policies to include additional living expense coverage that is up to 20% of your dwelling coverage. 

For many families, this percentage is enough, but if you have a large family or other specific needs that might increase the cost of living, you might consider extending your limits.

Consider additional coverage options

People are often surprised that floods, earthquakes, sewer backups, sinkholes, certain mold problems and other disasters are not covered by standard plans. 

For example, 68% of people believe standard policies cover sewage backups when they don’t according to a 2017 Hippo survey. Meanwhile, 38% of people believe, incorrectly, that standard policies cover broken appliances or HVAC issues, according to that same study. Take a close look at your plan to understand what it does and doesn’t include and consider adding on additional coverage. 

Your home is where you make happy memories with your family. That’s why it’s important to sufficiently protect it and all of your belongings should a disaster occur. Determine exactly how much coverage you need with a home insurance quote from Hippo, which is available in 60 seconds.


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