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Homeowners Insurance Calculator: How Much Do You Need?

by Jessie Jordan,  Oct 21 2020

Not sure how much home insurance coverage you need? With Gabi’s home insurance calculator, you can compare home insurance quotes for free!

If you are a new homeowner or an existing homeowner, you are likely wondering, “How much homeowners insurance do I need?” While you want to protect your home — as it’s likely one of your largest investments — you don’t want to overpay for that protection

A high-value policy provides the coverage you need to rebuild your home if something disastrous happens, it protects your assets if you are found liable for damages in a lawsuit, and it comes at a competitive price. But how do you figure out how much coverage you need and if the price of your home insurance policy is competitive?

This article will share: 

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How much are the average home insurance rates?

When looking at the cost for homeowners’ insurance nationwide, the average is $1,211 per year, according to the latest report from the Insurance Information Institute (III). That breaks down to about $101 per month. Depending on where you live, this may sound really cheap, average, or really expensive. It all comes down to your proximity to hazards.

The state with the highest home insurance premiums is Louisiana, with an average rate of $1,968 per year. Florida comes in a close second with an average premium of $1,951 per year, and Texas is in third at $1,584. The higher rates make sense because all three states are found on the coast in high-risk areas vulnerable to expensive weather-related damage. On the other hand, the state with the cheapest insurance is Oregon with an average premium of $677, followed by Utah at $692, and Nevada at $755. The low rates are a result of all three states having a low risk of natural disasters. 

While the national and state average cost of homeowners insurance can give you ballpark figures, it’s not the most effective way to determine if your premium is competitive. Costs vary greatly by location as well as based on the amount of coverage you have. Instead, we recommend you first assess the level of homeowners insurance coverage you need and want and then compare quotes from various companies in your local area. 

Looking for a home insurance calculator? Compare rates now with Gabi!

Not sure how much coverage you need? Here’s a closer look at the types of coverage on offer and how to figure out how much you need. 

What are the common home insurance coverage options?

Homeowners’ policies typically come in packages with two main types of protection. The first is property coverage which protects your structures and belongings against damages from covered events. The second is liability coverage which helps to protect you from losing your home and assets if you are sued in a lawsuit. Learn more about the different coverage types below. 

SECTION I:

Dwelling

This coverage is the most important part of your policy because it’s the home in the homeowners’ policy. Your dwelling is your house, and everything attached to it, such as your garage and built-in appliances (sump pump, furnace, etc.). Pay attention to the list of covered losses in this section of your policy as those are the events in which your damages will be compensated. Your limit here should be enough to rebuild your home entirely to the same standard. 

Other structures

This section covers your unattached structures. Garages, sheds, fences, barns, greenhouses, and above-ground swimming pools are examples of “other structures.” This coverage is important if you have buildings on your property that you want to protect. Your coverage level here needs to be high enough to rebuild the structures you would want if everything on your property was destroyed. 

Personal property coverage

Your personal belongings are covered in this section like furniture and clothing. A fun fact is some of your landscaping will be covered as well, so your peace of mind can extend to your plants, trees, and shrubs. Everything you own is covered in this section, so it’s important to choose policy limits that will help you recoup most of the replacement costs in the event of a loss. You can choose between an actual cash value or replacement cost options. The first one will pay for your damaged or stolen item’s current worth, while the latter will cover the costs of buying a new one.

Loss of use

If your home burns down, where do you go? Loss of use coverage (also known as additional living expenses) ensures you have the necessary expenses to live elsewhere while repairs are being completed. This coverage pays for additional costs for things like dining and hotel stays. It can often be used for up to 12 months.

Add ons

Other coverage options are typically optional endorsements but not always. For example, if you live in a flood zone or where earthquakes are prevalent, your lender may require carrying these add-ons. Optional add-ons often include coverage for sewer and drain back-up, your home’s siding, your high-value belongings, your home business, and your watercraft.

Section II:

Liability

Liability insurance protects you from bodily injury and property damage lawsuits, such as if someone gets hurt in your pool and sues you for the medical expenses. The coverage will pay for the costs of defending you in court and any settlement awards up to your limit. Your home could be at risk if someone is injured and sues you, so it’s a good idea to carry enough liability coverage to protect your most valuable asset.

Medical Payments

Like liability, medical payments are made when someone is injured on your property. The limits for this coverage are lower and meant to settle small claims. This insurance will come in handy if someone were to cut themselves or have minor fall damage.   

When deciding on coverage types and limits, the goal is to get enough insurance to completely rebound if you need to so you are protected in the event of a total loss or a liability lawsuit. 

How to calculate your home insurance need

Wondering, “how much homeowners insurance do I need exactly?” Here are five important steps in the calculation process. 

  1. Ask your mortgage lender. Your mortgage company has a vested interest in your property, so they will have strict guidelines for the minimum insurance you can carry. In general, lenders want you to carry enough to rebuild your home to protect their investment. They may also have additional endorsements they want you to carry, such as earthquake or flood insurance, depending on where you live. 
  2. Consider the replacement cost. To calculate your home’s replacement cost, multiply the square footage of your house by local construction costs. This is just the square footage of your house, not including your land. You can find local construction costs by speaking to local companies. Or, you can pay to have your home assessed. Remember your other structures are paid out at a percentage of your dwelling coverage, so you may want to carry more than your replacement cost simply to better protect your other structures and personal property.
  3. Weigh your coverage options. Consider the limits on each individual part of your policy. You may need more coverage than your lender requires, but then again you may not. Is your dwelling, meaning the house itself, in rough shape? Is everything new and modern? Maybe your lender isn’t considering your upgrades, and thus, you may require more insurance. Details that impact rebuilding costs include the style of your house, the type of exterior, the number of rooms, special features like arched windows, and custom builds. 
  4. Calculate your total assets. What is your net worth? Your assets are at risk when you’re liable in a lawsuit. If someone injures themselves on your property and you exhaust your homeowner’s insurance, you could end up paying out of pocket. Make a list of all your assets, determine what is and isn’t covered, include bank accounts and investments. Add up the value of each. If your policy maxes out at a number less than this one, then consider the benefits of umbrella insurance
  5. Look to the past. If you’re shopping around, you can use your old policy as a basis for your new one. You may even find a new insurance company that offers better coverage at a more affordable rate.
  6. Make sure you’re covered in case of natural disasters. Your homeowners insurance policy will only pay for certain perils listed on your policy. Make sure that you have sufficient coverage and ask your insurance agent about any add-ons you should purchase to protect your property and your pocket.

Standard homeowners’ insurance policies usually only cover your detached structures up to 10% of your dwelling coverage. As for your personal belongings coverage, limits are typically set at 50% to 70% of your dwelling coverage, and expensive items typically have a dollar limit placed on them. Liability limits usually start at around $100,000. If you need or want more, you’ll need to analyze the value of your home and assets to adjust the limits accordingly. A homeowners insurance calculator can also help you run the numbers. 

What is the 80% rule in homeowners insurance?

The well-known 80% rule in homeowners insurance states that an insurance provider will entirely pay for the damage to a house provided that the policyholder has insurance coverage amounting to at least 80% of the house’s total replacement value. So if your property’s replacement cost is $800,000, your minimum coverage would equal $640,000. If you purchase less coverage (for example $512,000), your compensation would be the proportion of the $640,000 to the amount that you actually purchased. $512,000/$640,000 would give 0,8 which means your insurer will only cover 80% of the costs. So if your house suffers from a covered peril causing $200,000 worth of damages, you’ll receive only $160,000. And the rest would have to be paid out of your pocket.

What’s important is that any alterations and renovations have an impact on the replacement value, so homeowners should check their coverage limits from time to time to ensure that they meet the 80% rule.

Find your best home insurance offer

Once you figure out how much homeowners’ insurance you need, it’s time to find the price you want. Shopping around is easier than ever with Gabi as you can compare homeowners insurance rates from a wide variety of insurers online, all in one place. Explore the market once per year before your renewal to make sure you are not overpaying. Better deals are out there, and you can use Gabi’s free home insurance calculator and quoting tool to compare dozens of homeowners insurance quotes from different insurance providers side-by-side.

Also, if you have car insurance you can bundle your policies to save even more.

Editorial content on Gabi.com is reviewed by a licensed insurance agent. It is intended for informational purposes only and should not be considered legal or financial advice.
Written by
Jessie Jordan
Jessie is a Marketing Specialist at Gabi. As a licensed insurance agent, she has been helping Gabi customers buy and understand auto, home, renters, landlord, and umbrella insurance in a digestible way since she joined the Gabi team in 2020. Before joining Gabi she was a globally recognized Senior Account Executive for UPS- trusted with advising top brands on how to grow and streamline their business.
Reviewed by
Robbie Boddy
Robbie is the Vice President, Head of Sales & Customer Experience at Gabi. As a licensed insurance agent, he has more than 15 years of experience in the insurance industry, joining Gabi after working with Liberty Mutual as the Assistant Vice President and Site Leader, Direct Sales and Innovation. Robbie is a member of the Chartered Property and Casualty Underwriters society and has a Master of Business Administration (MBA) from Grand Canyon University.
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