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How Much Home Insurance Do I Need?

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  May 9th, 2019  By Adam Morgan

Home insurance isn’t one-size-fits-all. There are standard policy types available from all of the best home insurance companies, but you can customize your coverage levels, adjust your deductibles, add endorsements, and augment your home insurance to make sure you’ve got everything you want covered, covered. And while there is no right or wrong answer to how much home insurance you need, there are options depending on what you can afford.

Step 1: Check Your ‘Basic’ Coverage

Every insurance provider is a little different, but most homeowners in the United States today have an HO-3 policy, which covers the following things:

  • Dwelling coverage, meaning your home and anything attached to it
  • Other structures on your property like fences, garages, or guest houses
  • Personal property like furniture and (some) appliances (for more appliances and systems, you’ll need a home warranty)
  • Liability and medical costs if someone is injured on your property and/or sues
  • Loss of use coverage to cover living expenses if you need to relocate while your home is being repaired or rebuilt

An HO-3 policy only applies in a predetermined set of circumstances, also known as the “16 perils.” If your home is damaged by something that isn’t on this list — like floods or earthquakes — you won’t be able to file a claim.

  • Fire or lightning
  • Windstorm or hail
  • Explosion
  • Riot or civil commotion
  • Damage caused by aircraft
  • Damage caused by vehicles
  • Smoke
  • Vandalism or malicious mischief
  • Theft
  • Volcanic eruption
  • Falling object
  • Weight of ice, snow, or sleet
  • Discharge or overflow of water or steam from plumbing, heating, air conditioning, fire-protective sprinkler system, or household appliance
  • Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, air conditioning, or fire-protective system
  • Freezing of a plumbing, heating, air conditioning, or fire-protective system, or household appliance
  • Sudden and accidental damage from artificially generated electrical current

That’s why many homeowners — depending on their homes, their property, their location, and their budget — take further steps to protect themselves beyond purchasing basic coverage.

Step 2: Conduct a Home Inventory

Even if you can’t afford to add any “endorsements” (read: extra coverage) to your home insurance policy, you should definitely conduct a home inventory to get an accurate estimate of how much your property is worth. An itemized home inventory will also make your claims process much smoother if you suffer a loss, since you’ll have a precise record of value. Part of your home insurance conversation with your agent will be about how much coverage (i.e., what dollar amount) you want to set aside for your home, other structures, and personal property. Without a thorough home inventory, you’ll be making a wild guess that could come back to bite you.

Step 3: Consider Add-On Endorsements

In addition to “basic” coverage, most home insurance companies provide add-on options called “endorsements” to cover special circumstances. Some of the most common endorsements include coverage for:

  • Jewelry and valuable items
  • Home businesses
  • Water backup and sump pump damage
  • Earthquake damage
  • Green home repairs
  • Personal property replacement cost (extra coverage for personal items)
  • Identity theft protection (some providers have started adding this to their basic coverage)

If you know you’re at risk for any of these losses, adding an endorsement now is much cheaper than paying out-of-pocket later. Make sure to check with your provider — or your potential providers, if you’re shopping — to see what endorsements it offers and what it includes by default.

Step 4: Consider an Umbrella Policy

Umbrella policies, or “excess liability” policies, are like an insurance reserve that covers more than your main policy (like an umbrella, get it?). Exactly what and how much more depends on you and your provider, but umbrella policies can insure your home for a higher dollar amount and for more hazards. If your home is particularly high-risk (e.g., very old or located in a flood or earthquake zone) or high-value, an umbrella policy could be the only way to make sure that you’re fully covered.

Once you have an accurate estimate of your home’s value, check to make sure your primary home insurance policy (and its endorsements) will cover everything you need it to, both in terms of cost and in terms of your property and the losses you could potentially suffer. Almost all of the major home insurance companies offer umbrella policies, so all you have to do is ask. The price of an umbrella policy will depend on how much insurance your home already has (the more insurance, the cheaper the umbrella), but also on how risky your home is to insure. According to the Insurance Information Institute, “To write an umbrella or excess policy, most companies will require a minimum of $300,000 underlying liability insurance on your standard homeowners policy.”

Step 5: Look Into Flood and Earthquake Risks

If you live in an area prone to floods or earthquakes, you should know that a standard, “basic” HO-3 home insurance policy doesn’t cover either of those things.

For floods:

For earthquakes:

  • Check FEMA’s guide to see if your home is at risk for earthquakes.
  • Ask your insurance provider about its earthquake endorsement. The price will depend on how risky your home is, and according to the Insurance Information Institute, deductibles “are higher than those in standard homeowners or renters insurance, usually from 5 to 15 percent of the policy limit.”
  • If you live in California, you can purchase a separate policy from the not-for-profit California Earthquake Authority. Since it specializes in earthquake coverage, you may find its policies more comprehensive than those of a national insurance provider, though it’s definitely worth comparing your options.

Step 6: Don’t Forget About Home Warranties

A home warranty isn’t the same thing as home insurance, but most people don’t realize that to cover everything in your home, you actually need both. While home insurance covers structures and some forms of personal property, a home warranty covers the systems and appliances that make your home functional, including:

  • Refrigerator
  • Dishwasher
  • Range/oven/cooktop
  • Clothes dryer
  • Built-in microwave
  • Free-standing ice maker
  • Washer
  • Dryer
  • Garage door opener
  • Trash compactor
  • Heating with ductwork
  • Electrical
  • Water heater
  • Garbage disposal
  • Air conditioning
  • Ceiling fan
  • Doorbell

See our review of the best home warranty companies for more.

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