The right Amount of Homeowners Insurance

The amount of homeowner’s insurance that is “right” depends on your particular circumstances. You will want to consider what types of loss your policy actually covers, any additional coverage you might need and what dollar limits you are comfortable with.

The most common homeowner’s insurance policy in the United States is called the Homewoners-3 (HO-3). This policy covers most “Acts of God,” including fire and smoke, explosion, lightning, tornadoes, hail and windstorms, as well as acts of man such as vandalism and theft.

There are some restrictions, depending on where you live. For example, insurers generally require homeowners living on the Gulf Coast to purchase separate hurricane/windstorm coverage. In areas prone to hailstorms, there may be a separate deductible for hail damage.

In addition, some “Acts of God,” including flood damage and earthquake damage, are not covered. Homeowners living in areas prone to either of these disasters must purchase separate coverage in order to be fully protected.

It is a good idea to review your coverage regularly. At the very least, review your policy when you have a change in family status or make a major purchase (jewelry, art, etc.)


1. Where you live. If you live in an area prone to a particular natural disaster, ensure that your policy covers the loss, or purchase additional coverage. The cost of additional coverage depends on the likelihood that the specific damage will occur.

2. The replacement value of your home. Most lenders allow you to purchase a homeowner’s insurance policy covering 80% of the value of your home. While this may reduce premium costs, that 20% could make a considerable dent in your finances if you have to rebuild completely. Consider insuring your home for 100% of its value and increasing your deductible in order to lower premium costs.

Remember that the value of the land does not need to be figured into these calculations. Even if the house is a total loss, the land will still be there.

3. The replacement value of your possessions. A standard policy is unlikely to cover the full value of expensive jewelry, art or electronics. For example, most policies cover jewelry up to between $1000 to $2000. If yours is valued higher, you will need additional coverage.

Keep in mind that a homeowner’s policy covers possession wherever in the world they might be. But, most items are covered at current value, not replacement value. So even if you consider it unlikely that an item might be stolen or damaged at home, if you regularly take it out of your home, consider ensuring it is covered for full replacement value. An example might be a laptop that you take with on frequent trips, or even your golf clubs.

Some older policies cover less than today’s HO-3 policies. If you are unsure of what type of policy you have, talk to your agent and, if necessary, get a homeowner’s insurance quote for a new policy.