What is a good amount of medical coverage to carry on your homeowners insurance?

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There are four standard areas covered by your regular homeowner's policy.
Let’s Break Them Down!
Coverage for the structure of your home
Coverage for your personal belongings
Liability protection
Additional living expenses (ALE)
How to determine how much dwelling coverage you need
Find your home’s replacement cost
Consider extended dwelling coverage
How to determine how much personal property coverage you need
How to determine how much liability coverage you need
Consider higher additional living expenses limits
What is not covered by homeowners insurance?
Flood insurance
Earthquake insurance
Water backup coverage
Frequently asked questions

Are you a potential or new homeowner? Have you given any thought to what your homeowner's insurance will cover? Homeowner's insurance gives you financial protection against damages to your house, a home loss due to natural disasters, theft, and other unfortunate accidents.

There are four standard areas covered by your regular homeowner's policy.

Your home’s physical structure
Your personal belongings inside the home
Liability protection
Coverage for additional living expenses.

Let’s Break Them Down!

Coverage for the structure of your home

Your policy should pay to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning, or other disasters listed in your policy (read your policy carefully before signing up!).
Detached structures such as a garage, tool shed, or gazebo are covered in some policies as well – again check with your agent and read your policy carefully.
It is important to note: a standard policy will not pay for damage caused by a flood, earthquake, or routine wear and tear. When purchasing coverage for the structure of your home, remember this simple guideline: Purchase enough coverage to rebuild your home.

Coverage for your personal belongings

This covers things inside your home like furniture, clothes, sports equipment, and other personal items that are stolen or destroyed by fire, hurricane, or other insured disasters.
The coverage is generally 50 to 70 percent of the insurance you have on the structure of the house. You should conduct a home inventory to see if this is enough coverage for you.
Note: Personal belongings coverage includes items stored off-premises—this means you are covered anywhere in the world. Some companies limit the amount to 10 percent of the amount of insurance you have for your possessions- again check and read carefully before signing your policy!
Remember that expensive items like jewelry, furs, art, collectibles, and silverware are covered, but there are usually dollar limits if they are stolen. You may wish to purchase additional insurance to cover those items fully.

Liability protection

Liability is legal protection for you in case of lawsuits for bodily injury or property damage that you or family members cause to other people.
It also pays for damage caused by your pets. For example: if a child or pet of yours ruins someone’s property, you are covered. The liability portion of your policy pays for both the cost of defending you in court and any court awards—up to the limit stated in your policy documents- so again, check your policy.
While liability protection also provides no-fault medical coverage for someone injured in your home. But please note, it does not pay the medical bills for your own family or your pet.

Additional living expenses (ALE)

Additional living expenses pay any additional costs of living away from home if you cannot live there due to damage from an insured disaster.
This coverage takes care of hotel bills, restaurant meals, and other costs, over and above your usual living expenses, incurred while your home is being rebuilt.
ALE does have limits, however, and some have time limits – talk to your agent and understand what, if any, restrictions there are in your ALE portion.

For more information on homeowner's insurance, you can check out our dedicated section on our website. And remember - your insurance policy is a contract, be sure you read it and understand it before you sign it so there are no surprises when you go to make a claim later.

Purchasing a house comes with inherent risk given the mere size of the investment and the unpredictability of Mother Nature. Fortunately, with the right homeowners insurance, you have the peace of mind knowing your home and finances are fully protected should the unexpected occur.

But picking out a policy is just part of the equation — you’ll also want to make sure you have enough home insurance coverage to cover your house, possessions, and assets in the event of an expensive disaster or accident.

How to determine how much homeowners insurance you need

Determine the rebuild cost of your home. Your policy’s dwelling coverage limit should be based on its replacement cost, or the cost to rebuild from the ground up — not the market value or purchase price.
Take an inventory of your belongings. You’ll want enough personal property coverage to cover the value of belongings, including furniture, electronics, and other valuables. Creating home inventory both helps you determine your coverage needs and makes it easier to account for lost or damaged items when filing a claim.
Find out the total value of your assets. Your liability coverage limit should be high enough to cover the combined value of your assets, including liquid assets, cars, and any other properties you own, in the event you’re legally responsible for an injury or property damage and sued.
Figure out how much loss of use coverage you’ll need. Most policies come with additional living expenses (ALE) coverage of up to 20% of your home’s insurance value to cover the cost of hotel stays, restaurant meals, and other expenses you incur in the event your house is badly damaged and you need to live elsewhere. If you live in a high-risk area and you suspect you may need higher ALE limits, consider purchasing more coverage for an additional premium.

How to determine how much dwelling coverage you need

You should have enough dwelling coverage to cover the cost of rebuilding your home from the ground up in the event it's completely destroyed in a disaster.

This amount is different from your home’s market value, which is how much buyers are willing to pay for it on the real estate market. What you'll need to figure out is the home's replacement cost, or the cost to rebuild.

Find your home’s replacement cost

To get a rough idea of how much your home’s rebuild value is, there’s a simple way to do it: Multiply the square footage of the home by the average cost per square foot to build in your area. [1]

There are many factors that affect a home’s rebuild cost, including:

Local construction costs
Age of your home
Your home's square footage
Number of bathrooms and other rooms
Style of your home — colonial, ranch, farmhouse, craftsman, etc…
Type, materials, and age of your roof
Special features of your home — fireplaces, crown molding, arched windows, etc…
Whether your home was custom built
Recent renovations

Learn more >> How to estimate home replacement cost

Consider extended dwelling coverage

There are times when your dwelling coverage limit may not be high enough to rebuild your house to its pre-disaster condition — even when you think it's covered for its full replacement cost.

This is often the case in the wake of severe natural disasters, like a hurricane or tornado, when replacement costs surge in affected areas due to the increased demand for labor and construction materials. Underinsurance is also a problem during periods of high inflation when costs can rise over the course of weeks or months. Since policy limits are typically only adjusted once per year, this could mean your house is underinsured.

That's where having additional dwelling protection like extended or guaranteed replacement cost comes in handy.

Extended replacement cost: This is an optional home insurance coverage that protects you in the event your home is destroyed and rebuild costs are higher than the dwelling coverage limit in your policy. This coverage is offered by most home insurance providers in increments of 10% to 50% (of your dwelling limit), though higher or lower limits may also be available.
Guaranteed replacement cost: This is an optional home insurance coverage that pays the full cost of rebuilding your home after a disaster, regardless of the cost. This is similar to extended replacement coverage in that its triggered by spikes in reconstruction costs — the difference is there isn't a cap or limit to how much it will pay out.

Extended and guaranteed replacement cost are both limited by company and state. If you're interested in these coverages, reach out to your insurance agent to see if it's an available option, or shop around for a home insurance company that offers it.

Rising construction costs could leave you underinsured

Home insurance doesn’t account for inflation — the increased prices of labor and construction materials. It also doesn’t take into consideration the cost of bringing an older home up to code during a rebuild.

This means many homeowners are underinsured and don't know it. It's estimated that two out of every three homeowners don't have enough home insurance coverage to fully protect their home, belongings, and other assets after a covered loss, according to the Insurance Information Institute.

Check with your insurance company to learn if they offer any coverage add-ons to protect you against this — like inflation guard or ordinance or law coverage. This ensures you have enough coverage to fully rebuild your home, even if construction costs rise.

How to determine how much personal property coverage you need

The amount of personal property coverage you need is typically set at 50% of your dwelling coverage amount. That means if your home is insured for $400,000, your personal property coverage limit would be $200,000.

However, some insurance companies will give you the option of increasing your personal property coverage limits up to 70% of your dwelling limit for an additional premium.

3 steps to figure out how much personal property coverage you need

Follow these steps to determine how much personal property coverage you need on your home insurance policy:

Take a home inventory. A home inventory is a detailed list of all of your personal possessions — as well as their cost. It gives you a better idea of how much personal property coverage you need. And bonus: You’ll have records of your belongings if you need to file a claim.
Decide if actual cash value coverage is enough. Standard home insurance policies protect your personal property at its actual cash value — meaning depreciation is subtracted from your total reimbursement amount. But you have the option of upgrading your coverage to replacement cost coverage, which doesn’t factor in depreciation when paying out your claim. If you decide to upgrade to this, you’ll typically pay 10% more than you would have with ACV coverage.
Add extra coverage for high-value belongings. Home insurance companies set restrictions on how much they’ll reimburse you for high-value items like jewelry or computers. For example, jewelry coverage often maxes out at $2,000. If you have expensive belongings, check with your insurance company to see if they offer a scheduled personal property endorsement to increase your coverage limits for specific items.

How to determine how much liability coverage you need

To figure out how much personal liability coverage you actually need, you’ll want to add up the total value of your assets — including your home, belongings, vehicles, and liquid assets. That means if you have $400,000 in assets, you should have at least $400,000 in personal liability coverage — if not more to ensure you’re fully protected.

If someone is injured while at your house and you’re held liable, you'll want enough personal liability coverage to cover expensive legal fees, medical bills, funeral expenses, and other liability expenses.

Have more than $500,000 in assets? Consider an umbrella policy

If your assets total more than the maximum personal liability coverage limit in your policy — typically $500,000 — the Insurance Information Institute recommends adding a personal umbrella policy. With umbrella insurance, you can usually increase your liability insurance between $1 million and $5 million.

Consider higher additional living expenses limits

Your additional living expenses coverage limit is typically 20% of your dwelling coverage limit by default, but your insurance provider may offer higher limits for an additional cost. If your home is located in an area prone to natural disasters, it may be worth opting for higher ALE limits.

You can calculate how much ALE coverage you need by adding up how much you spend on living expenses like food, rent, and gas in a typical month.

Policygenius can calculate how much home insurance you need — for free

Simply click the start calculator button and answer a few questions to be connected with a licensed Policygenius expert. We’ll crunch the numbers to figure out exactly how much home insurance coverage you need and help you compare quotes from some of the best home insurance companies on the market.

We can even help you bundle your home and auto insurance together so you have fewer companies to deal with — and help you score a discount to boot!

What is not covered by homeowners insurance?

Homeowners insurance excludes certain disasters from coverage, including flooding, earthquakes, and water damage from sump pump or sewer line backups. To ensure you’re fully protected, consider additional insurance coverage or policy endorsements.

Flood insurance

While homeowners insurance covers certain causes of water damage — like a burst pipe — it doesn’t cover flood damage. Even if you don't live in an area that’s at high risk for flooding, you should still consider purchasing a standalone flood insurance policy anyway.

Why? Because 25% of all flood losses occur in low-risk areas, according to the Insurance Information Institute. [2]

Homeowners who live in flood zones may also be required by their mortgage lender to have a flood insurance policy in addition to their regular home insurance.

Learn more >> How does flood insurance work?

Earthquake insurance

Your standard home insurance policy also won’t cover earthquake damage. You may be able to add an earthquake endorsement to your current homeowners insurance policy.

Otherwise, you might want to consider purchasing a standalone earthquake insurance policy — even if you don't think earthquakes are a problem where you live.

Why? Because as many as half of Americans are exposed to a potentially dangerous quake, and that number is likely higher in earthquake-prone states like California, Nevada, and Oklahoma, according to the U.S. Geological Survey. [3]

Learn more >> Is earthquake insurance worth the cost?

Water backup coverage

Damage from water that backs up through your drains or sewers or overflows from a sump pump isn’t typically covered by a regular homeowners insurance policy or flood insurance policy. [4] If you want protection from this type of water damage, you can add water backup coverage as an endorsement to your policy.

Learn more >> How does water backup coverage work?

Frequently asked questions

How much coverage should you buy for your home to be fully insured?

For your house to be fully insured, you’ll want to make sure your policy’s dwelling coverage limit is equal to the home’s replacement value. When you get your homeowners insurance quote, the insurance company will likely provide an estimate of your home's replacement cost and other coverages in your policy, but it may be worth getting a replacement cost appraisal if your house is in a high-risk location.

Do I need more home insurance coverage every year?

Because construction costs rise each year due to inflation, make sure to adjust your dwelling coverage levels at your annual policy renewal. You’ll also want to increase your coverage limits after major renovations, after adding a pool or gardening shed to your property, or after purchasing expensive valuables.

What is usually not covered by homeowners insurance?

Most homeowners insurance policies do not cover water damage caused by flooding, earthquake damage, subsidence, gradual water damage, pest damage, damage due to neglect or maintenance problems, and theft if your house has been vacant for more than 60 days.

How much home insurance is required by mortgage lenders?

Many mortgage lenders will require enough home insurance to pay for a full rebuild of the home. Though some may only require you to purchase an amount equal to or greater than the principal balance of the mortgage. If you live in a high-risk flood zone, your lender may also require you to purchase flood insurance.

Do I need additional insurance coverage if I'm renovating my home?

Depending on the extend of the renovations, you may need insure the home with a builders risk insurance policy throughout the course of the project. Most home insurance policies don't cover homes under construction due to the increased loss and liability risk. Some insurers may also offer a dwelling under construction coverage endorsement that you can add onto your home insurance policy.