How Much Homeowners Insurance Do I Need?

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Insuring your home consists of protecting four things: the structure of the home, possessions you own, liability to others, and additional living expenses should your home be destroyed. When you take out a homeowners insurance policy, you want an adequate amount for each of those attributes. You also want to keep costs as low as possible. Most people don't want to have too much coverage, while at the same time making sure they don't have too little. In this article we'll discuss how much home insurance you should have so that you can strike a happy balance for your specific circumstances.

How Much Home Insurance Should I Have to Protect the Structure of My Home?

To cover the structure of your home, you want your coverage to equal the value of your home and possessions. This should be based on their worth at the time you buy your policy. Hurricanes, fires, tornadoes: these are the things that may destroy your home, and the things your home insurance policy will protect you against. There are three options when deciding how much homeowners insurance you need to protect your home, with the latter two being the best options.

  • Actual Cash Value (ACV)
  • Replacement Cost (RCV)
  • Guaranteed or Extended Replacement Cost

ACV provides you with the smallest amount of coverage needed, as it covers whatever the value of your home is minus depreciation. For example, if you bought new wood flooring in 1995 for $5,000, and it got destroyed in a fire in 2017, your company would not pay you for the full $5,000 with ACV coverage, because the value of the flooring depreciated in value since 1995. If you opt for ACV, should your home be destroyed, there is a decent chance your homeowners insurance company won't pay you enough to actually rebuild the home in its entirety. The upside to ACV is that your premiums will typically be lower with this kind of coverage. However, if your home is destroyed, you may end up paying more out of pocket.

Replacement cost value (RCV) is what we recommend for most homeowners. RCV will pay for the full extent of whatever your home will cost to replace at whatever time. Most insurance companies have tools to help you calculate what the replacement cost value of your home may be. State Farm, for example, has the 360Value tool that allows you to get a solid estimate at the RCV. This coverage is your best option to replacing your home in its entirety.

Finally there is guaranteed or extended replacement cost. This option is the most expensive, in terms of premiums, and may only be worth it for homeowners in high peril areas like in southern Louisiana and Florida. This option will cover the cost of rebuilding the home, even if costs exceed the limits of your insurance policy. Some companies make a guarantee they will cover up to 20% to 25% past policy limits. The reason we say this may be a good option for those in high peril areas is because after certain disasters, the high demand for rebuilding materials may cause prices to go up. A major hurricane may have every contractor in southern Louisiana working overtime, leading the project to cost more than normal. That’s where guaranteed extended replacement cost becomes worth the higher price tag.

How Much Homeowners Insurance Coverage Should You Have Based On Your State?

We compiled a list of the median home value in each state, as well as the property damage done to the state per square mile in the last 60 years. If your state tends to be one of the states that has a lot of property damage costs, you should strongly consider the extended replacement option.

StateMedian House ValueProperty Damage Per Square Mile
Louisiana$144,100$1,238,042
California$385,500$778,786
Florida$159,000$708,850
Mississippi$103,100$624,741
New Jersey$315,900$407,854
Alabama$125,500$334,079
North Carolina$154,900$169,429
Ohio$129,900$166,321
Vermont$217,500$156,670
Tennessee$142,100$155,227
Massachusetts$333,100$154,880
Illinois$173,800$152,540
Connecticut$270,500$152,035
Maryland$286,900$112,501
Indiana$124,200$110,657
Pennsylvania$166,000$106,281
Missouri$138,400$105,034
Texas$136,000$99,655
Rhode Island$238,000$99,379
Iowa$129,200$97,530
New York$283,400$95,824
Georgia$148,100$83,823
Arkansas$111,400$82,523
Oklahoma$117,900$78,843
North Dakota$153,800$75,231
Delaware$231,500$72,641
Kentucky$123,200$67,917
Minnesota$186,200$63,954
Wisconsin$165,800$57,828
Kansas$132,000$53,783
Virginia$245,000$49,167
Michigan$122,400$41,828
West Virginia$103,800$41,014
Nebraska$133,200$40,453
South Carolina$139,900$37,038
Hawaii$515,300$32,913
Arizona$167,500$32,889
Colorado$247,800$25,896
New Hampshire$237,300$23,669
Maine$173,800$16,909
New Mexico$160,300$16,010
Washington$259,500$11,509
Oregon$237,300$10,073
Utah$215,900$9,342
South Dakota$140,500$8,831
Nevada$173,700$7,550
Idaho$162,900$2,996
Montana$193,500$2,352
Wyoming$194,800$2,132
Alaska$250,000$505

How Much Homeowners Insurance Should I Have to Protect My Personal Possessions?

You want coverage equal to the total value of every personal possession you own -- even if it's not in the house. Homeowners insurance is great because it protects everything you own inside your home and even things you own outside of it. They don't have to be destroyed to be covered either. If any of your items are stolen or vandalized (except your car), your homeowners policy covers the cost to repair or replace them. Generally, home insurance companies will set this amount at 75% of your structure, or 'dwelling', coverage. So if your RCV is $500,000, then your personal property limits will be set at $375,000 by default.

For most people, that will be a perfect amount, for others it may be too much or even too little. The best way to determine how much coverage you should have to protect your personal property is to make an inventory of everything you own. While that may seem like a lot of work, it will make everything much easier if you need to file a claim in the future. Start with the large items: TVs, computers, fridges, couches, beds. Think roughly how much you spent for each of those items, and how much it may cost to replace them. Then get the smaller items: clothes, kitchen appliances, tools, sports equipment. Soon you'll have everything you own. It will likely tally up to 75% of your home's value, but if it's less or more, talk to an agent to increase the limits.

We should mention though that certain items will only be covered up to certain amounts. Computers for example may only be covered up to $5,000. This may be a more pressing issue if you own jewelry. Most standard policies will cover jewelry only up to about $2,000. If you own more than $2,000 worth of jewelry, you will need to purchase a separate endorsement that will cover your jewels.

What Are Additional Living Expenses?

This provision of homeowners insurance covers the cost of having to live outside your home, in the event it becomes unlivable. For example, if your home is completely destroyed, it may be a while until you can sleep there again. Most policies will cover your expenses up to 20% of your normal coverage, which would be $100,000 on a $500,000 policy. You would be covered for the cost of renting a new place, and any other expenses associated with the temporary home. Whether it's the extra cost of gas for driving to the home, or food costs if your new place doesn't have a kitchen. All these things would be covered.

When you file for a quote, you usually won't be able to control how much additional living expense insurance you have on your policy. As mentioned, most insurers It will set this at 20% of your total coverage.

How Much Liability Coverage Do I Need For My Homeowners Insurance

The liability portion of your homeowners policy will essentially cover any expenses you incur when you accidentally injure someone else or damage someone else's property -- as long as it wasn't caused by you driving a car). Accidents happen, many of them are out of your control. If your dog bites someone, you accidentally knock someone down a flight of stairs, or your toddler ends up smashing your friend's precious vase: homeowners liability insurance covers it all. So how much should you have?

When it comes to liability insurance, whether it's for a car insurance or homeowners insurance, you need to have limits that are equal to your total assets. Your assets include everything you own, and do not just the 'liquid' cash in your bank account. Your assets include things like your 401k savings, your home, and even your car. The reason it's important to have liability insurance that equals the amount of your assets is to guard them from lawsuits. If you have $500,000 in assets, $100,000 in liability coverage, and a $250,000 lawsuit is filed against you, you may end up having to come up with the $150,000 difference, should you lose the case. The plaintiff can come after any of your assets to reach that $150,000, if you don't have the funds to pay up. If you had $300,000 worth of liability insurance though, you would be covered fully.

Luckily, liability insurance is generally one of the cheaper parts of your homeowners policy. The difference between $100,000 and $500,000 worth of coverage is very small in terms of your premium, so you should always opt for higher limits on your policy. Below you can see how much different liability limits cost at State Farm.

Liability AmountState Farm Total Monthly Rate
$100,000$57.17
$300,000$59.33
$500,000$61.50
$1,000,000$64.08

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