How to estimate your home insurance cost | Bankrate (2024)

Homeowners in the U.S. pay an average rate of $2,230 per year for $300,000 in dwelling coverage (as of July 2024). But how is home insurance calculated? And how can you estimate homeowners insurance costs while you’re searching for your new home? Rates are based on a broad range of factors, including your location, your home’s age and how it was built (construction materials). Bankrate created this guide to help you understand how insurers determine premiums so you can better estimate your costs when you are in the market for a new home insurance policy.

How to estimate homeowners insurance

There are a number of steps insurers take to determine your homeowner’s insurance costs calculation. Understanding this process may help you prepare pertinent details about your home to provide insurance companies when they are calculating your costs for home insurance.

What information do I need to get a home insurance quote?

When you first approach an insurance company for a quote, you will need to provide information about your home and circ*mstances. Having this information available beforehand can make the process go more smoothly. The company’s calculations will take into account the cost to rebuild your home and other structures, replace your personal property and pay out on legal or medical costs if there is a liability claim made against you. Your quote is also likely to take into account the costs of temporary living expenses while your home is being repaired following a claim. Here are some things to consider as you begin to estimate your home insurance costs.

1. Estimate how much it would cost to rebuild your home

Estimating your home’s rebuild cost is the first step in answering how home insurance is calculated. This figure determines your dwelling coverage amount, which is the limit your insurance company will pay to repair or rebuild your home after a covered claim. The rebuild value is just one factor that will impact your home insurance rates, but it’s important since your dwelling coverage also helps determine the other coverage limits on your policy.

Your home’s rebuild value is not the same as its market value. A home’s market value includes the land and is influenced by outside factors, like supply and demand. When you determine your rebuild value, the dwelling coverage is based on how much it would cost to rebuild or repair your home, which considers labor costs and the cost of materials.

The cost to rebuild your home depends on several criteria, including:

• Your home’s age
• Total square footage
• Age and type of heating, electrical and plumbing systems
• Building materials
• The foundation type
• Its roof type and materials
• Any unique or custom building features or characteristics

Insurance companies input these details in their valuation tools to calculate the home’s replacement cost. Since each company has its own proprietary rating algorithm, the calculated amount can vary by insurer, but it is the amount the insurer will base the dwelling coverage amount on. Knowing your home’s characteristics and providing these details to an insurance agent or company will help you accurately determine the cost of rebuilding your home’s structure.

2. Estimate the value of your assets

Next is estimating the value of your assets. The personal liability coverage on your home insurance policy may cover costs if you are sued or held legally liable for another person’s injuries or property damage. Liability claims may include:

• Dog bites
• Trampoline injuries
• Pool injuries
• Someone injuring themselves in your yard or home
• Someone in your household damaging someone else’s property

To determine your personal liability needs, calculate your total assets. This means all properties you own, possessions and vehicles. Most insurance companies have a cap on personal liability coverage. However, some high-value home insurers may offer higher liability amounts. If your assets exceed a company’s personal liability coverage, it may be worthwhile to buy umbrella insurance, which kicks in if you exhaust the underlying liability limits on your home and auto policies.

3. Estimate the value of your personal property

A good insurance policy is also likely to cover the replacement cost of your personal belongings, from clothing and appliances to electronics and furniture, if they are damaged or destroyed by a covered peril. There is a deductible for this type of coverage that you will pay before your policy kicks in and your coverage only extends to your policy’s limits, so it’s important to accurately estimate how much your belongings are worth.

Usually, personal property insurance covers your belongings at a rate of 50-70 percent of your dwelling coverage. But what do you do if you have, for example, an expensive collection of artwork or pricey electronics? If you have high value items, you may want to consider adding a scheduled personal property endorsem*nt to your insurance coverage. This provides more robust coverage for items you own that have a high value.

Determining how much personal property coverage you need can be challenging. One tactic that can make it easier is to create a home inventory of your belongings. You might do this by walking through each room of your house, taking videos or photos of all your possessions so it’s easier to itemize their value after filing a claim. Keep receipts and serial numbers in a safe place, and consider doing a professional valuation of high-cost items such as artwork.

One final consideration is whether you want your possessions covered on a replacement cost basis or for actual cash value. The latter takes into consideration the deprecation of an item over time. If you have actual cash value coverage, you’ll receive a lower payout than if you have replacement cost coverage, especially if many of your belongings are on the older side, but you’ll also pay less for your coverage.

4. Determine how much standard coverage you need

Now that you have all your values for your home insurance cost estimate, it’s time to determine how much home insurance coverage you need. If you want replacement cost, your policy should reflect at least the minimum values you determined for your home and personal property, and make sure you’ve added the replacement cost endorsem*nts to your policy or that this coverage is included.

• Dwelling: Pays to repair or replace the structure of the home.
• Other structures: Covers detached structures on your property, such as a fence, detached garage, driveway or treehouse. Other structures coverage is typically 10 percent of the dwelling amount.
• Personal property: Pays to replace or repair your belongings, usually 50 to 75 percent of the dwelling coverage amount.
• Personal liability: Covers legal expenses if you are held legally responsible for someone else’s injuries or property damage, plus their medical expenses.
• Loss of use: Also called additional living expenses, this coverage pays for increased living costs, including food, laundry and lodging, if your home is temporarily uninhabitable after a covered loss. Loss of use coverage is usually 20 to 30 percent of your dwelling coverage, but some insurers have a time limit rather than a percentage limit.
• Medical payments: Pays up to a certain dollar amount for medical expenses if a guest is injured on your property. In these cases, you are not legally liable for their injuries but still want to help cover their medical costs.

5. Determine whether you need additional coverage types

Most insurers offer endorsem*nts, or optional riders, that allow you to personalize your policy to better reflect your circ*mstances. In some cases—for example, if your mortgage lender requires it—you may be required to include these insurance types.

Some endorsem*nts are region-specific. A common example is flood insurance. Floods are not covered by standard home insurance policies, but if you live in a designated flood zone, your lender may require you to purchase an additional flood insurance policy to protect its interest in your home.

Even if you’re not required to carry additional coverage types, it can be worth considering them to give yourself more effective coverage that would protect you in a broader range of circ*mstances. A licensed insurance agent can help you determine what, if any, endorsem*nts or additional policies might be worth considering.

Endorsem*nts and separate policies can include:

• Earthquake coverage
• Water and sewer backup
• Flood insurance
• Sewer lines
• Sinkhole coverage
• Identity theft

How is home insurance calculated by insurers?

There is no standard formula to calculate homeowners insurance. Each company uses a proprietary underwriting algorithm that weighs your underwriting characteristics differently (your ZIP code, loss history and roof age, for example). Your rebuilding cost is only one piece of the puzzle.

That said, home insurance quotes vary from company to company. Perhaps the best way to estimate your homeowners insurance cost is to compare home insurance quotes from multiple carriers (making sure to request the same or similar coverage levels across the board).

If you’re struggling to estimate your rebuild cost (and thus, how much dwelling coverage to quote), you may want to research average home building costs in your area, with the goal of finding the estimate to rebuild a home per square foot. Once you know the average home rebuild cost in your area, you can multiply this figure by the square footage of your home.

For instance, let’s say you spoke with several local contracting companies and found that, on average, the home rebuilding cost in your area is $200 per square foot. Your home is 1,200 square feet large. To calculate the approximate cost of rebuilding your home, you could use the following formula:

($200) x (1,200 sq. feet) = $240,000 approximate home rebuild cost

If you recently purchased a home or are in the market to buy a house, you may also use the appraisal to help estimate the dwelling value. While this information can help give you a baseline of how much dwelling coverage to quote, property insurers use their own valuation tool to calculate the actual total of your home’s dwelling amount and annual premium.

How much does homeowners insurance usually cost?

Carrying the proper amount of dwelling coverage based on your home’s rebuild cost is essential to ensure you’re paying an accurate (and competitive) rate.

In the table below, we’ve compiled average premiums from analytics company Quadrant Information Services for some of the most common dwelling coverage limits available for standard home insurance policies, accurate as of July 2024. However, the overall cost of your homeowners policy depends on much more than just your dwelling coverage. Since multiple factors affect your actual cost for home insurance, you could end up paying more or less than the averages below.

• Where you live plays a big role in your home insurance costs; understanding the average costs in your specific state may help give you a better idea of what you might actually pay when it’s time to purchase your policy.

  State	Average annual premium*
  Alabama	$2,745
  Alaska	$987
  Arizona	$2,000
  Arkansas	$3,056
  California	$1,453
  Colorado	$3,124
  Connecticut	$1,677
  Delaware	$966
  Florida	$5,533
  Georgia	$1,945
  Hawaii	$1,134
  Idaho	$1,265
  Illinois	$2,189
  Indiana	$1,655
  Iowa	$2,012
  Kansas	$4,103
  Kentucky	$3,113
  Louisiana	$4,274
  Maine	$1,190
  Maryland	$1,528
  Massachusetts	$1,622
  Michigan	$1,809
  Minnesota	$2,417
  Mississippi	$2,820
  Missouri	$2,065
  Montana	$2,521
  Nebraska	$5,249
  Nevada	$1,138
  New Hampshire	$973
  New Jersey	$1,112
  New Mexico	$2,058
  New York	$1,690
  North Carolina	$2,495
  North Dakota	$2,538
  Ohio	$1,188
  Oklahoma	$4,700
  Oregon	$986
  Pennsylvania	$1,149
  Rhode Island	$1,961
  South Carolina	$2,360
  South Dakota	$2,732
  Tennessee	$2,410
  Texas	$3,726
  Utah	$1,182
  Vermont	$806
  Virginia	$1,497
  Washington	$1,337
  Washington D.C.	$1,377
  West Virginia	$952
  Wisconsin	$1,154
  Wyoming	$1,352

  *All premiums are for $300,000 in dwelling coverage.

Frequently asked questions

• The amount of homeowners insurance needed depends on various factors such as the home’s replacement cost, age, square footage and characteristics. This information is used to calculate your dwelling coverage limit, otherwise known as the estimated cost to rebuild your home. A percentage of the dwelling coverage limit is then used to estimate the limits for other coverage types if you choose to purchase them, such as personal property coverage. A simple formula for estimating your dwelling coverage limit is to take the square footage of your home and multiply it by the per-square-foot building costs in your area to reflect the current cost of construction. While this will give you a rough estimate, it’s best to speak to a licensed insurance agent about your specific situation. Miscalculating your dwelling coverage limit could lead you to be underinsured, or potentially cause you to pay for coverage you don’t need.
  

• The 80 percent rule in homeowners insurance means that you must insure your home for at least 80 percent of the replacement cost for an insurer to cover the damages. If the home is insured for less than 80 percent, the carrier may only cover a percentage of the claim, opening you up to the risk of paying significant costs out of pocket. Consider how homeowners insurance calculations for your property work out in order to determine the cost to replace 80 percent of your home.

  Keep in mind that not all home insurers follow the 80 percent rule; you should carefully review your policy with your insurance agent to determine if this rule applies to it.

• There are many factors that determine the cost of homeowners insurance. The state you live in, your credit-based insurance score (in most states) and claims history are factors insurers may use to determine costs. Home characteristics, such as the age, square footage, roof age, building materials and overall condition, also factor into the total cost. Policies in high-risk areas may also have a separate deductible for hurricane damage or wind/hail damage.
  

• Your deductible directly impacts your home insurance premium and factors into your homeowners insurance costs calculation. A higher deductible typically results in a lower premium and vice versa. By opting for a higher deductible, you agree to pay more out of pocket toward an insured loss, which reduces the insurer’s financial risk and, as a result, typically lowers your premium. On the flip side, a lower deductible means your insurer assumes more risk, leading to a higher premium to offset the increased liability.
  

• There are a few tactics you can use that might help lower your home insurance costs. To begin with, consider reviewing your policy every year at renewal time. Make sure you still have the types and levels of coverage you need, and consider gathering a few quotes from other insurers to see if anyone else can give you a better rate. You may also want to speak with your agent about any discount opportunities available to you.

  At the same time, review your carrier’s discount opportunities and make sure you are receiving any that you are eligible for. If you are not already bundling your home and auto insurance, consider doing so, since this often leads to a significant discount. You might also consider making improvements to your home. A new roof can often lead to savings, as can adding safety features like security systems or smoke detectors.

Methodology

Bankrate utilizes Quadrant Information Services to analyze July 2024 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Quoted rates are based on married male and female homeowners with a clean claim history, good credit and the following coverage limits:

• Coverage A, Dwelling: $300,000
• Coverage B, Other Structures: $30,000
• Coverage C, Personal Property: $150,000
• Coverage D, Loss of Use: $60,000
• Coverage E, Liability: $500,000
• Coverage F, Medical Payments: $1,000

The homeowners also have a $1,000 deductible, a $500 hail deductible and a 2 percent hurricane deductible (or the next closest deductible amounts that are available) where separate deductibles apply.

These are sample rates and should be used for comparative purposes only. Your quotes will differ.