Homeowners should have enough insurance coverage to rebuild their home if it’s destroyed. It’s also vital that homeowners have adequate coverage to protect their possessions and assets.

A home insurance policy is made of various coverage types: dwelling, possessions and liability. Knowing the dollar and coverage limits of each is important in figuring out how much home insurance you need. This article will help you understand:

How much dwelling coverage should I get?

Simply put, you want enough structural coverage to rebuild your house from the ground up. Imagine if your home is destroyed in a fire. If you don’t have enough dwelling coverage, you won’t have enough money to rebuild your home to its original standard.

Dwelling coverage is also known as hazard coverage. It covers:

  • Foundation
  • Frame
  • Roof
  • Attached garages and decks
  • Enclosed patios
  • In-ground pools
  • Chimneys
  • Installed fixtures
  • Built-in appliances

Knowing how much dwelling coverage you need for a complete rebuild requires a bit of homework. First, you’re going to want to calculate your home’s replacement cost. Your home’s replacement cost isn’t the same as its market value. Dwelling coverage is just your home’s rebuild cost including materials and labor. Your home insurer can estimate the replacement cost for you, but you should fact-check their number.

Should I get a second opinion on my dwelling coverage?

Having the right amount of dwelling coverage on your home policy ultimately comes down to you. While home insurers have plenty of resources to get an accurate replacement cost for your home, you’re definitely going to want to check their math. If there are any errors, it falls on you.

One easy way to calculate your replacement cost is to find out the average construction costs per square foot in your area. You then multiply that by your home’s square footage for a rough estimate of your replacement cost. See if your number is in the same ballpark as the insurance company’s calculation.

Odds are your home insurer is going to use a contractor from your town in the event of a claim, so the numbers that a local contractor gives you aren’t going to be too off-base. There are many online home value calculators that can help you get an accurate estimate.

If you’re not feeling too confident with your math skills, there’s nothing wrong with hiring a pro. A professional appraiser can give you an unbiased breakdown of the home’s value. When they’re done, they’ll give you a full report of the cost to rebuild that you can share with your home insurer.

How inflation affects your home insurance needs

The coronavirus pandemic has caused a significant change in prices over the last year. That affects everything from the cost of your car and the price of food, to how much insurance you need. Because if your home and the things inside it are suddenly worth $100,000 more, you might need more insurance to cover the cost of replacing them.

Prices for items and services related to home, auto and valuable personal property all changed dramatically from 2020-2021. The price of lumber, however, is skyrocketing. Up 250% in the last year, lumber’s new price could leave millions of Americans underinsured. On average, it now costs $36,000 more to replace a home. And an out-of-date dwelling coverage limit may no longer provide enough money to rebuild a home after a total loss.

How prices changed from 2020 - 2021
Item/Service Price Change
Lumber 250%
Rental car 110%
Gasoline 56%
Airline tickets 24%
Laundry machines 26%
Jewelry and watches 14%
Houses 13%
Bacon 13%
Women’s dresses 10%
Bicycles 10%
Milk 7%
Fresh fruit 7%
Appliances 7%
Pet services 5%
Physician services 4%
New cars and trucks 3%
Car repair 3%
Prescription and medicinal drugs -2%
Health insurance -5%
Calculators and telephone hardware -19%

Price increases have hit some areas of the country particularly hard. Our analysts looked at price changes in over 335 different categories. We found that prices increased the most in the Midwest and South and least in the West and Northeast.

Where prices increased the most in 2021
Region Overall price increase
Midwest 5.60%
Northeast 3.90%
South 5.60%
West 4.70%

States where home prices are declining

Image depicting decline in housing prices

While home replacement costs are still high, home prices are starting to come down. From June 2020 to June 2022, the average price of a home increased by nearly 40% nationwide. From June 2022 to August 2022, though, home prices dropped as much as $100,000 in certain states and cities across the country.

We found that home prices have declined in eight states and 32 cities. Utah and San Jose, Calif., have experienced the steepest declines in home prices. The declines may seem small when looked at in percentage terms, but sudden declines could cost homeowners looking to sell now a lot of money.

States with the biggest decline in home prices
State Average home price % change since June 2022 Change in home value since June 2022
Utah $564,248 -1.73% -$9,917
California $775,876 -1.55% -$12,205
Arizona $442,859 -1.13% -$5,075
Oregon $518,377 -1.00% -$5,228
Colorado $580,275 -0.97% -$5,665
Washington $616,259 -0.80% -$4,972
Idaho $467,883 -0.77% -$3,625
Nevada $462,259 -0.55% -$2,570
Source: Zillow housing data
Cities where home prices are declining
City Average home price % change since June 2022 Change in home value since June 2022
San Jose, CA $1,563,717 -5.6% -$93,037
Austin, TX $566,479 -3.7% -$22,060
Salt Lake City, UT $591,469 -3.0% -$18,118
San Francisco, CA $1,422,887 -2.9% -$42,144
Reno, NV $565,321 -2.4% -$14,141
San Diego, CA $893,508 -2.4% -$22,286
Boise City, ID $502,547 -2.2% -$11,130
Portland, OR $571,598 -2.1% -$12,039
Provo, UT $582,311 -2.0% -$11,629
Seattle, WA $767,629 -1.8% -$14,400
Los Angeles, CA $914,636 -1.8% -$17,071
Ogden, UT $525,128 -1.7% -$9,201
Phoenix, AZ $472,210 -1.7% -$8,124
Denver, CO $629,632 -1.7% -$10,657
Sacramento, CA $606,836 -1.6% -$9,589
Stockton, CA $555,734 -1.4% -$7,767
Oxnard, CA $854,191 -1.3% -$11,005
Spokane, WA $444,661 -1.1% -$5,076
Colorado Springs, CO $488,377 -1.0% -$4,990
Pittsburgh, PA $211,063 -0.7% -$1,556
Worcester, MA $418,798 -0.6% -$2,548
Riverside, CA $581,054 -0.6% -$3,342
Santa Rosa, CA $813,354 -0.5% -$3,958
Salinas, CA $835,031 -0.5% -$3,798
Visalia, CA $331,188 -0.4% -$1,414
Raleigh, NC $457,072 -0.4% -$1,890
Minneapolis, MN $373,948 -0.3% -$1,231
Modesto, CA $468,412 -0.3% -$1,420
Las Vegas, NV $448,874 -0.3% -$1,233
Vallejo, CA $613,738 -0.2% -$1,150
Detroit, MI $241,182 -0.1% -$293
Washington, DC $552,793 -0.1% -$403
Source: Zillow housing data

How much personal property coverage should I get?

Personal property coverage, also known as content coverage, protects your stuff in the house. Most standard home insurance policies, also known as HO-3 policies, cover your belongings for around 50% to 70% of your dwelling coverage limit. If you have $300,000 in dwelling coverage, you’ll have between $150,000 to $210,000 in personal property coverage.

To find the right amount of content coverage, create an itemized inventory list. An inventory list is valuable beyond estimating what your belongings are worth. Having a list of all your items and their dollar value on hand saves time if you have to file a home insurance claim. You can total the value of damaged items right from this list. Then, just send it to your home insurance company. An inventory list will also help you win a claim dispute.

Insuring your high-value belongings

How much personal property coverage you need for high-dollar items tends to depend on the item. It’s important to know that home insurers cover certain valuables at lower sub-limits. A standard home insurance policy, also known as a HO-3 policy, usually covers jewelry for between $1,000 and $2,000.

If you damage a wedding ring worth $15,000, this policy limit is going to leave you with a small payout. Insurance riders are available to give your valuables more comprehensive coverage. Again, your inventory list is helpful in figuring out what rider amounts you’d need.

Comparing actual cash value vs. replacement cost

When you file a home insurance claim for personal property, your payout depends on how your belongings are valued on your policy. Home insurance policies use actual cash value (ACV) or replacement cost.

ACV policies pays your claim out based on the current market value of an item minus any depreciation. Replacement cost pays out based on the cost to repair or replace the item without depreciation being a factor. Replacement cost policies are more expensive, but the higher payout compared to an ACV policy makes it worthwhile. Whether you're going with an ACV or replacement cost policy should figure into how much coverage you need.

How much personal liability insurance do I need?

Most home insurance policies start liability coverage at $100,000. This may seem like a lot of money. However, a liability claim can easily surpass that, especially if you have lots of assets. Liability coverage protects you if someone is injured in your home. The bills for an extended medical stay or a lengthy lawsuit are costly.

We recommend that you get at least $300,000 in liability coverage. But you can purchase up to $500,000. The jump from the minimum amount of liability coverage to $300,000 or even $500,000 might seem huge, but it only adds a few dollars onto your monthly premium. It’s really worth it in the long run.

if you have large assets, you may need even more liability. Umbrella insurance policies are often available to bump your liability limits starting at $1 million. This policy add-on will cover monetary damages that exceed your liability limit. When you consider how expensive a lawsuit can be, an umbrella policy is a good choice.

Getting the right amount of additional living expense coverage

If damage renders your house uninhabitable you should have enough additional living expense (ALE) coverage, also known as loss of use coverage, to maintain your current standard of living. ALE can cover the additional costs incurred while your home is repaired. The limit for ALE depends on the home insurance policy type you have. The standard limit for a HO-3 policy is 30% of your dwelling coverage limit. This means that if you have $300,000 in dwelling coverage, your ALE limit is $90,000. In the event you are displaced during repairs to your home, ALE covers:

  • Temporary housing
  • Food
  • Transportation costs
  • Furniture
  • Utilities
  • Storage
  • Pet boarding
  • Laundry

Just because a structure is on your property doesn’t mean it’s covered under your home insurance. Some home insurance policies don’t cover structures not connected to the home. These structures can include gazebos, sheds and detached garages. Check your policy to make sure these items are covered in the other structures portion of your policy.

Other structures coverage will pay out up to 10% of your home insurance limit. If your policy limit is $250,000, that gives you $25,000 for other structures coverage.

Do I need natural disaster coverage?

Standard home insurance does not cover most natural disasters. Depending on where your house resides, you may need extra coverage for your home. Key disasters not covered by homeowners insurance include flood, hurricane and landslide insurance.

Flood insurance

If you have a mortgage in a high flood risk area, your mortgage lender will probably require you to have enough flood insurance to rebuild your home. Unfortunately, homeowners insurance does not cover flood damage. You can purchase flood insurance through the NFIP or a private insurer. We recommend you purchase enough flood insurance to be able to rebuild your home and replace your possessions.

Hurricane Insurance

There is no one policy that provides hurricane coverage. Along with your home insurance, however, you can get flood and, depending on your area, windstorm insurance that will give you good coverage in the event of a hurricane.

Landslide Insurance

In the event of a landslide or a mudslide, homeowners insurance will not cover it. If you live in an area where landslides are common, consider looking at a “difference in conditions” (DIC) policy. It will cover you in the event of a mudslide or landslide. DIC policies are expensive but can be worth it if you live near landslide territory.


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