How much home insurance do I need?

Most homeowners are underinsured. The standard advice — ‘just match your mortgage’ — misses the point entirely. Your mortgage is what you owe; your insurance should cover what it would cost to rebuild.

The four coverages that matter

A standard homeowners policy bundles four primary coverages. Each one needs to be sized to your actual situation:

1. Dwelling coverage (Coverage A)

This is what it would cost to rebuild your home from scratch, using current construction costs in your local market. It is NOT:

• The home’s market value (which includes land)
• The mortgage balance (which is what you owe, not what to rebuild costs)
• The original purchase price (which is years out of date)

Get a current replacement-cost estimate from your insurer or a third-party calculator. In high-cost or wildfire-exposed markets, rebuild costs have risen 30-50% in recent years.

2. Personal property (Coverage C)

Coverage for everything inside your home — furniture, electronics, clothing, kitchenware. Usually set as a percentage of dwelling coverage (typically 50-70%). For most households this is enough, but inventory expensive items: jewelry, art, collectibles, electronics, musical instruments. These often need scheduled (additional) coverage to be fully insured.

3. Liability (Coverage E)

Pays when someone is injured at your home or you cause damage to others. Standard policies offer $100K-$300K. $300K is the modern baseline; $500K-$1M is wise if you have any assets to protect. Pair with an umbrella policy if your net worth is significant.

4. Loss of use (Coverage D)

Pays for temporary housing, meals, and additional expenses if your home is uninhabitable. Usually a percentage of dwelling coverage. Make sure it’s enough for 6-12 months of equivalent housing in your area — major rebuilds take longer than people expect.

Replacement cost vs. actual cash value

The single most important coverage decision is replacement cost vs. actual cash value (ACV):

• Replacement cost pays to replace damaged items with new equivalents
• ACV pays the depreciated value — a 10-year-old couch is paid out at 10-year-old couch prices

Replacement cost is usually a small surcharge (10-15%) and is almost always worth it. Some insurers only offer ACV by default; ask explicitly for replacement cost on both dwelling and personal property.

Extended and guaranteed replacement cost

In high-risk markets, even full replacement cost coverage can fall short if construction costs spike during a regional disaster:

• Extended replacement cost pays a percentage above your policy limit (typically 25-50%) if rebuild costs exceed your coverage
• Guaranteed replacement cost pays whatever it costs to rebuild, no cap

Guaranteed RCV is the gold standard but isn’t offered by all carriers and isn’t available in all markets. If you’re in a wildfire zone, hurricane zone, or any rapidly inflating construction market, ask about it.

What home insurance does NOT cover

Standard policies exclude:

• Flood (separate NFIP policy required)
• Earthquake (separate endorsement)
• Sewer/sump pump backup (optional endorsement)
• Mold beyond a small cap (optional endorsement)
• Routine maintenance issues (a leaky roof from age is never covered)
• High-value items above standard limits (jewelry, art, collectibles need scheduling)

The right size for most homeowners

For a typical homeowner:

• Dwelling: current replacement cost (not market value, not mortgage)
• Personal property: 50-70% of dwelling, replacement cost coverage
• Liability: $300K minimum, $500K-$1M preferred
• Loss of use: 20-30% of dwelling
• Deductible: $1,000-$2,500 standard; higher if cash flow allows (lowers premium)

Pair with a flood policy if anywhere remotely near water and an umbrella policy if you have meaningful assets.