Published on February 25th, 2026

How Much Home Insurance Do I Need?

The right amount of home insurance covers four things: rebuilding your home from the ground up, replacing everything you own, protecting your assets from lawsuits, and paying for temporary housing while repairs happen. Most homeowners get this wrong because they base their coverage on what they paid for their house, but your purchase price has almost nothing to do with what you actually need to insure.

This guide shows you exactly how to calculate coverage for each component: dwelling, personal property, liability, and loss of use. No guesswork, no industry jargon, just a clear methodology for determining the protection you actually need.

Don't know what these coverage types mean? Start with our guide.

The big mistake: why home value ≠ insurance coverage

One of the most common misconceptions about home insurance is that your coverage amount should match your home's market value. This isn't how it works.

Market value is what someone would pay to buy your home, including the land. Replacement cost is what it would cost to rebuild your house from the ground up if it were destroyed. These are two very different numbers.

Here's why they don't match:

For example, a home with a $400,000 market value might sit on land worth $120,000. The structure itself might only cost $280,000 to rebuild. In this case, you'd need $280,000 in dwelling coverage, not $400,000. Overinsuring wastes money on premiums; underinsuring leaves you vulnerable.

Your home insurance policy has four main coverage components, and each one requires its own calculation. Let's walk through how to determine the right amount for each:

#1: How much dwelling coverage do you need?

Dwelling coverage is the most critical component of your home insurance policy. It pays to rebuild or repair your home's structure if it's damaged or destroyed. Getting this number right protects your most valuable asset.

Understanding replacement cost

Replacement cost is the amount it would take to rebuild your home using similar materials and construction quality, based on current prices. This isn't a simple calculation because it factors in:

• Current construction labor rates in your area

• Material costs (lumber, roofing, fixtures)

• Your home's square footage and layout complexity

• Special architectural features

• Quality of finishes and materials

How to calculate your dwelling coverage

Start with square footage and local rebuild costs. The basic formula is:

Square footage × local cost per square foot = baseline rebuild cost

Local rebuild costs typically range from $100 to $400+ per square foot, depending on your region and home quality. A basic home in the Midwest might cost $150 per square foot to rebuild, while a home in a high-cost area like San Francisco could run $350 or more.

Use professional estimates. The most accurate approach is to get estimates from:

• Your insurance company's replacement cost calculator: Many insurers provide online tools that factor in your specific home characteristics.

• A local contractor: General contractors can give you ballpark rebuild estimates based on current material and labor costs.

• A professional appraisal: For high-value or unique homes, a formal appraisal ensures accuracy.

Factor in material upgrades and special features

Standard square footage calculations assume average construction. If your home has custom elements, you'll need additional coverage:

• Custom kitchen with high-end appliances and cabinetry

• Specialty flooring (hardwood, tile, stone)

• Built-in features (bookcases, window seats)

• High ceilings or complex rooflines

• Energy-efficient systems or smart home technology

Code upgrades and ordinance coverage

When rebuilding, you'll need to meet current building codes, not the codes in place when your home was originally built.

Standard policies typically don't include ordinance or law coverage, or include only minimal coverage. If you have an older home, consider adding an ordinance or law endorsement to cover the additional costs of bringing your rebuilt home up to current code requirements.

For more information, check our guide.

#2: How much personal property coverage do you need?

Personal property coverage protects your belongings, furniture, clothing, electronics, appliances, and everything else inside your home. Most policies automatically set this at 50-70% of your dwelling coverage, but this formula doesn't work for everyone.

Create a home inventory

The most accurate way to determine how much personal property coverage you need is to inventory what you own. This sounds tedious, but you don't need to count every sock.

High-value items require scheduling

Standard policies impose sub-limits on certain categories of property. This means even if you have adequate overall personal property coverage, specific types of items may only be covered up to a lower amount. Common categories with sub-limits include:

• Jewelry and watches

• Artwork and collectibles

• Silverware and fine china

• Cash and securities

• Firearms

• Electronics (sometimes limited per item)

If you own valuable items in these categories, you'll need to schedule them separately with additional coverage. This requires documentation such as receipts, appraisals, or photographs, but ensures full protection if they're stolen or damaged.

If you own items that exceed these limits, you'll need to schedule them separately with additional coverage. This requires documentation but ensures full protection.

ACV vs. RCV

Personal property coverage comes in two forms:

• Actual Cash Value (ACV): Pays the depreciated value of your belongings

• Replacement Cost Value (RCV): Pays to buy new items without depreciation

RCV coverage costs more but provides significantly better protection. A five-year-old sofa might have an ACV of $300 but cost $1,200 to replace new. With ACV coverage, you'd receive $300. With RCV, you'd receive $1,200.

#3: How much liability coverage is enough?

Liability coverage protects your assets and income if you're sued for injuries or property damage. The standard policy offers $100,000 to $500,000 in coverage, but this might not be enough depending on your financial situation.

Think about your assets and income

Liability coverage should protect what you could lose in a lawsuit. Consider:

• Net worth: Add up your home equity, savings, investments, and other assets.

• Future earnings: If you have decades of earning potential ahead, you're a bigger target for lawsuits.

• Risk factors: Do you have a swimming pool? Trampoline? Dog? Host frequent gatherings? These increase liability risk.

General guideline: Your liability coverage should equal or exceed your net worth. If you have $300,000 in assets, consider at least $300,000 in liability coverage, preferably $500,000.

Umbrella policies for extra protection

If your net worth or risk factors suggest you need more than $500,000 in coverage, consider an umbrella policy. These policies provide an additional $1-5 million in liability coverage and typically cost $200-400 per year for the first million. It's inexpensive protection for high-net-worth individuals.

#4: Estimating loss of use coverage needs

This coverage is typically 20-30% of your dwelling coverage, but that formula doesn't account for individual circumstances.

Consider realistic timelines

How long might you need temporary housing? It depends on the extent of damage:

• Minor repairs: 1-3 months

• Major damage: 6-12 months

• Complete rebuild: 12-24 months

Rebuilding takes longer than most people expect, especially during contractor shortages or after widespread disasters when labor and materials are scarce.

Factor in family size and local costs

Family size matters: A family of five needs more space than a couple, and temporary housing for larger families costs more.

Local housing costs vary: If you live in an expensive rental market, your temporary housing costs could be substantial. Research average rental prices for comparable housing in your area.

Calculate your potential costs:

• Temporary housing: rental apartment or hotel

• Increased food costs: eating out more because you lack a full kitchen

• Storage fees: for salvaged belongings

• Pet boarding: if temporary housing doesn't allow pets

• Increased commuting: if temporary housing is farther from work or school

Special situations that may increase coverage needs

Certain home characteristics or circumstances require higher coverage amounts than standard formulas suggest.

1. High-risk regions 

Homes in disaster-prone areas face unique rebuilding challenges that can raise costs significantly. After disasters, demand for contractors and materials surges, leading to higher prices and labor shortages. Material suppliers may struggle, causing delays and further costs. High-risk areas often require specialized construction techniques like hurricane straps or fire-resistant materials, which are more expensive than standard methods. If you live in such a region, consider adding an inflation guard endorsement to ensure your coverage keeps pace with rising costs.

2. Recent renovations

Did you recently add a bathroom, finish a basement, or install a pool? Your dwelling coverage should reflect these improvements. Notify your insurer immediately after completing renovations to adjust coverage.

3. Inflation and material cost spikes

Lumber prices, labor rates, and material costs fluctuate. During periods of high inflation, rebuilding costs can increase substantially within a single year. Review your coverage limits yearly and adjust upward to keep pace.

For detailed information about disaster-specific coverage considerations, see our guide.

A simple checklist to calculate your coverage

Before diving into the detailed checklist, here's a quick reference for how coverage amounts typically relate to your dwelling coverage:

Note: These percentages represent common policy defaults, not necessarily what you need. Use the checklist below to determine your actual coverage requirements.

When should you recalculate your coverage?

Your coverage needs change over time. Review and adjust your policy in these situations:

• After renovations or improvements: Kitchen remodel, bathroom addition, finished basement, new roof, pool installation, any improvement that increases your home's value should trigger a coverage increase. Call your insurer immediately after completing work.

• When market conditions shift: Significant inflation in construction costs, material shortages, or labor rate increases can make your existing coverage inadequate. Review coverage annually and adjust upward to match current rebuild costs.

• After major purchases: Bought expensive furniture, jewelry, art, or electronics? Schedule high-value items and ensure personal property coverage is sufficient.

• When family circumstances change: Marriage, divorce, new children, or an elderly parent moving in can affect both the amount of personal property you own and your liability risk profile.

• Annual policy review: Make it a habit to review your policy every year at renewal. Even without major changes, gradual cost increases and accumulated belongings can create coverage gaps over time.

Homeowners insurance coverage FAQ