Updated: January 2, 2025
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Rates updated:
Jan 17, 2025
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Calculating how much home insurance you need will depend on your unique circumstances, such as the cost to replace your home, the cost of your personal belongings and even your lifestyle. You’ll also need to consider whether or not other coverages — such as flood or earthquake insurance — are appropriate.
Since dwelling coverage pays for damage to your home’s physical structure, it should be determined by the cost to rebuild your home from a total loss. For instance, if your home costs $200K to rebuild from the ground up after a disaster, your dwelling coverage should be at least $250K. Having a small buffer prevents you from overinsuring while also giving you peace of mind that your home’s repair costs will be completely covered.
If you’re not sure how much it costs to rebuild your home, here are a few ways you can do so:
Personal property coverage covers damage to all personal property and possessions inside your home. This can include everything from valuable furniture items and electronics to jewelry and more.
To determine how much personal property coverage you need, you should make a home inventory of your personal belongings and calculate what it would cost to replace them. This number is what you should aim for as a personal property coverage limit. In some cases, your insurer will automatically set your personal property coverage at 50% of your dwelling coverage.
Personal liability insurance is designed to protect homeowners from financial liabilities should they unintentionally cause harm or damage. When deciding on the amount of personal liability coverage for your home insurance, it's essential to consider various factors:
Remember: while it's tempting to opt for the cheapest home insurance coverage to save on premiums, it's crucial to ensure you're adequately protected to avoid significant financial setbacks in the event of an unforeseen incident.
While the core components of home insurance, such as personal liability and personal property coverage, are essential, there are additional coverages available that homeowners might overlook, such as hazard, flood and earthquake insurance. These can be crucial depending on individual circumstances:
Once you’ve calculated how much coverage you need, compile your personal information then collect and compare home insurance quotes amongst providers. Make sure to find a policy that fits your budget and coverage needs.
After identifying a provider, complete your application and settle your initial payment.
To get a quote online, in person or by phone, you’ll need to provide some basic information about yourself and your home, including:
Insurance providers consider various factors when calculating your home insurance premium, such as when and where your home was built, what environmental hazards there are, how much your home is worth and more. For instance, if you live in an area prone to wildfires, you might have to pay more for insurance.
Other factors that affect your home insurance costs include:
Factor | Description |
|---|---|
Your Coverage Level | How much home insurance coverage you have plays a significant role in your costs. Getting high dwelling coverage limits or personal property limits can increase how much you pay annually. But, not having enough coverage can leave you with a significant shortfall if you suffer a loss. |
Your Deductible | A home insurance policy’s deductible is the cost you pay out of pocket before your insurer steps in to cover repairs and replacements. Increasing your deductible can lead to lower monthly rates, but it also means you need to have enough saved to pay up if you incur a covered loss. |
Your Home’s Location | Insurers consider where you live and the environmental hazards of your area. Living in an area prone to hurricanes, tornadoes and wildfires, or in an area with a higher theft rate or population density, can affect your rates. |
Your Home’s Age | Older homes typically come with higher premiums, as the cost to repair damages may be higher due to outdated materials or systems. Conversely, newer homes are often cheaper to insure due to modern building codes and systems. |
Your Credit Score | In most states, insurers will consider your credit history when setting your premium. However, in California, Hawaii, Massachusetts and Michigan, insurers are not allowed to use credit-based insurance scores as a basis to determine rates. |
Your Claims History | Having a frequent history of claims can affect your rates. Claims typically stay on file for seven years and are captured in the industry's Comprehensive Loss Underwriting Exchange (CLUE) database. CLUE also tracks claims that were filed but denied by an insurer. |
Insurers calculate your home insurance premiums based on your dwelling coverage, personal property coverage and personal liability coverage. Dwelling coverage is the main driving factor, with $1 million in coverage costing an average of $8,414 per year, and $250K limits costing $2,635.
Use the table below to see home insurance estimates for different coverage levels.
| $100K Dwelling Coverage | $ 1,469 |
| $250K Dwelling Coverage | $ 2,635 |
| $500K Dwelling Coverage | $ 4,519 |
| $750K Dwelling Coverage | $ 6,447 |
| $1MM Dwelling Coverage | $ 8,414 |
Aside from your home’s value, location is one of the most significant factors impacting home insurance coverage and costs. This is because your location has a lot to do with how insurance companies calculate potential risks. For example, if you live in an area prone to natural disasters like hurricanes or wildfires, you can expect your premiums to be higher.
Similarly, if you live in an area with a high crime rate or an elevated risk of burglary or vandalism, you’ll likely end up paying more for home insurance. On the flip side, if you live in a safe area with few risk factors, your premiums will typically be lower.
Explore the table below to see the average cost of home insurance by state and dwelling coverage.
| Alabama | $ 2,781 |
Rates fluctuate because different states have varying risks and regulations. For instance, coastal states might have higher premiums due to the increased risk of hurricanes, while states in the Midwest might see elevated rates because of tornado threats and severe convective storms.
The stability of a state's insurance marketplace can also lead to variations in average premiums. Some states might have a plethora of providers, fostering competitive pricing, while others might have limited options, leading to higher average costs. Additionally, the local cost of living and construction can influence repair and replacement expenses, further impacting rates.
About Mark Fitzpatrick
Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.
Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.
