How much home insurance do you actually need?

Your dwelling coverage should equal the replacement cost of your home — what it would cost to rebuild from scratch with current materials, labor, and code requirements. Not the market value. Not the purchase price. Not the mortgage balance.

Why these are different:

• Market value includes land, which doesn't need to be rebuilt
• Purchase price reflects market conditions when you bought; replacement cost changes with material and labor costs
• Mortgage balance is what you owe to the lender, completely unrelated to rebuild cost

Replacement costs have risen significantly post-2020. Many homeowners are underinsured by 20-40% relative to current rebuild costs. Get a fresh estimate at least every 3 years.

Best estimation: use a carrier replacement-cost estimator (every major carrier has one), then cross-check against a local contractor's per-square-foot estimate.

Personal property coverage protects your belongings — furniture, electronics, clothing, tools. Default is usually 50-75% of dwelling coverage, automatically calculated by the carrier.

Two important sub-decisions:

• Replacement cost vs. actual cash value: always pick replacement cost. ACV depreciates older items — your 8-year-old TV pays out at $80 instead of $400. Replacement cost is typically only $30-$80 more per year. Worth it.
• High-value item limits: jewelry, firearms, fine art, collectibles, and electronics often have sublimits (typically $1,500-$5,000). Items above the sublimit need a scheduled rider with documented appraisals.

Liability coverage protects you if someone is injured at your home or you cause damage off-property. Standard is $100,000-$300,000; smart baseline is $300,000-$500,000.

Higher-net-worth households should pair $500K of home liability with an umbrella policy ($1M-$2M of additional liability for typically $200-$400/year).

Especially important if you have:

• A pool or trampoline
• A dog (especially breeds insurers flag as higher-risk)
• Frequent guests or social entertaining
• Teen drivers in the household

Loss of use (also called Additional Living Expenses or ALE) pays for housing, food, and necessary expenses while your home is being repaired after a covered loss.

Standard is 20-30% of dwelling coverage. After a major loss, this could mean 6-12+ months of temporary housing. Underestimating this is common.

Read the fine print: some policies cap loss of use by time (12 or 24 months) and by amount. Both matter.

The most expensive surprises after a loss come from finding out something wasn't covered. Standard policies typically do not cover:

• Flood — separate NFIP or private flood policy required
• Earthquake — separate endorsement or stand-alone policy
• Wind/hurricane in coastal areas — separate deductible or excluded entirely
• Sewer backup — endorsement typically $50-$100/year, often essential
• Mold (limited) — most policies cap mold coverage at $5K-$15K
• Termites and pests — never covered
• Wear and tear / maintenance — never covered
• Some service line failures — underground pipes; endorsement available

Sample structure for a $400K home in a moderate-risk area:

• Dwelling: $400K replacement cost (verify with current estimate)
• Personal property: 70% of dwelling, replacement cost coverage
• Liability: $500K
• Loss of use: 25% of dwelling
• Deductible: $1,000-$2,500 (depending on cash position)
• Sewer backup endorsement: yes
• Scheduled riders for any single items over $2,500 (engagement ring, fine art, expensive bike)
• Flood policy if anywhere near a flood zone or in hurricane-exposed area
• Umbrella policy: $1M if you have meaningful assets