Homeowners insurance is important to have if you own a home. Without it, property damage or accidents that happen at your home could be very costly and difficult to recover from financially.
Estimating the cost of homeowners insurance can be a big priority for new or potential home buyers. Based on 2021 data from Bankrate.com, the average cost of home insurance in the U.S. is $1,312 per year for a policy with $250,000 in dwelling coverage.
When you estimate homeowners insurance, factors such as location, type of dwelling, the personal property you have, and lawsuit liability all factor into your rate. Use this guide to determine approximately how to calculate homeowners insurance so you know what kind of estimate to expect.
Estimate your home insurance coverage limits
Dwelling coverage is a major portion of your homeowners insurance policy, covering your home and its main components, like the roof and plumbing. To estimate how much it would cost to replace your actual home, use this equation: home square footage x price per square footage to build in your area = replacement cost. For example: 1,900 square feet x $100 per square foot to build = $190,000 to replace.
For a more specific calculation, ask a local contractor or builder for an estimate for the price per square footage to build in your area. Other factors like roof type, foundation type, flooring, cabinetry, and countertops may also affect the estimate, as well. This formula starts you off with a ballpark figure.
Use coverage limits on an old policy
If you’ve already insured your home with a different homeowners insurer, you can look at the coverage limits on the old policy for your estimate. As long as everything is up to date and correct, you can use the information listed on your old policy’s declarations page to summarize an estimate of the coverage you’ll need.
Consider hiring an appraiser
An appraiser can provide a thorough examination of your home and provide you with a realistic estimate. A homeowners insurance appraiser takes an inventory of your house and everything in it, factoring age, deterioration, wear and tear, and more. They’ll compare the value of your home to others in the area, calculate how much your home and its contents are worth, and create an estimate that takes into account replacement costs.
Enlisting an appraiser costs you money and takes an added effort to schedule, but it can help because you’ll know the exact coverage you need and you can save costs on unnecessary or inadequate coverage.
Take inventory of your personal belongings
Homeowners insurance helps you cover the costs of personal belongings you could lose due to theft, a natural disaster, or someone in your home damaging them. For the most comprehensive coverage, you will want to take a home inventory to determine the value of personal belongings like jewelry, clothing, technology, furniture, and artwork.
This is a time-intensive step, but you’ll want an accurate view of how much it would cost to replace your belongings so you don’t have to dip into savings or other finances to cover them.
Consider raising coverage limits
Some items you note in your personal inventory may be limited in regards to how much coverage your homeowners insurance would pay out on them. For example, items like artwork or jewelry may have specific set reimbursement limits.
Since you may have items that would be irreplaceable because they’re one of a kind, or that may cost much more to buy new today, increasing your coverage limits can ensure you can recoup their value if lost, stolen, or damaged.
Consider your total assets
They may not technically be in your home, but your other financial assets like investments, stocks, bonds, business assets, and savings should be considered when you’re estimating how much homeowners insurance coverage you need. Personal liability coverage protects you against lawsuits that might be filed against you for injuries or damages that occur at your home, or if caused by you or your pet.
If you’re sued because someone is hurt at your home, or you or your pet hurts someone away from your home, the plaintiff can sue you for all your financial assets. You’ll want enough coverage to ensure you don’t lose it all in a homeowners-related lawsuit.
Consider coverage endorsements
Coverage endorsements ensure you have full protection for risks your home or area might face that aren’t covered by a standard policy. These include coverage for flooding, earthquakes, and water backups, among others.
The endorsements add to your homeowners insurance costs but can provide more comprehensive coverage for when unexpected natural disasters or home accidents strike that aren’t included in your primary policy coverages.
How your homeowners insurance rates are calculated
A variety of factors influence your homeowners insurance rate. One is the state in which your home is located. The physical location of your home may make it more susceptible to damage, such as hurricanes in Florida. Another variable is the age of your home — older homes are more likely to need repairs because of aging or deteriorated materials.
The amount of homeowners insurance claims you’ve filed in the past also plays a role. The deductible you set — which is the amount you pay out of pocket for damages before the insurance payments kick in — also affects your rates. In addition, the value of your home and your belongings, how much coverage you want, and any discounts you can get also play a part in determining your homeowners insurance rate.
About the Authors
Nicki Escudero is a freelance writer and journalist with more than 18 years of experience in the publishing industry, writing for international publications such as USA Today, Entrepreneur, Marketing Land, American Art Collector magazine and the Arizona Republic. She is passionate about helping readers discover helpful tips that lead to happier, healthier lives. A former Australian expat, Nicki has a passion for world travel and loves to learn about new cultures.