How much homeowners insurance do I need?

The planner turns six numbers about your home and finances into a suggested limit for each coverage on the declarations page. The most important result is Coverage A: it should match what it would cost to rebuild the house, not what the house would sell for.

How to use it

Start with the rebuild cost. Your insurer's replacement cost estimate, a builder's figure or the home replacement cost estimator will do; the market price and the mortgage balance will not. Then fill in the rest from what you know:

• Detached structures at rebuild cost: garage, shed, fence, pool.
• Belongings. Leave this blank to use half of Coverage A, or enter the total from a home inventory.
• Extra living costs per month and the months you might be out of the house.
• What a lawsuit could reach: home equity, savings, investments.
• Jewelry, watches and furs, if you own any.
• The box for a pool, trampoline, dog, teen driver or frequent guests.

For a gap check, type your current limits from the declarations page into the optional boxes at the bottom.

How the math works

Coverage A is the rebuild cost rounded up to the next $1,000. Coverage B is the larger of what you entered and 10% of A. Coverage C is your estimate, or 50% of A if you left it blank. Coverage D is monthly cost times months, compared with a 20% of A limit to show how long that limit would last. Liability is $300,000 or your net worth rounded up to the next $100,000, whichever is higher, and at least $500,000 if you ticked the risk box. Above $500,000 the tool suggests $300,000 on the policy plus an umbrella in $1 million layers.

Say, hypothetically, a $350,000 rebuild cost, $20,000 of outbuildings, $3,500 a month of extra costs for 12 months and $400,000 of assets. The planner shows A at $350,000, B at $35,000 (10% of A beats the $20,000 you entered), C at $175,000, and D at $42,000 ($3,500 × 12) — a 20% limit of $70,000 would last about 20 months at that rate. Liability comes out at $400,000. Jewelry of $5,000 triggers a warning, since the standard theft limit is $1,500.

What it assumes

Coverage B at 10% of A follows the ISO homeowners 3 form (HO 00 03 05 11, May 2011 edition, published by the Maine Bureau of Insurance), which allows more only through the declarations or an endorsement. The 50% for belongings and 20% for loss of use are the typical limits listed in the NAIC's consumer guide to home insurance; the form leaves those limits to the declarations page, and many insurers set loss of use at 30%. The $100,000 it cites as the standard liability default, the $300,000 floor, the $500,000 trigger for pools and teen drivers and the $1,000 to $5,000 medical payments range are likewise rules of thumb. The $3,500 monthly cost, 12 months and $400,000 of assets are editable examples, not market data. The $1,500 jewelry theft limit comes from the ISO form.

Where it stops being right

Your insurer's own form controls, and its defaults for B, C and D may differ. The planner leaves out flood and earthquake, which need separate policies. The gap check for Coverage D compares your limit with the months-and-dollars need you entered. If your Coverage A is below the rebuild cost, the coinsurance and insurance-to-value calculator shows what that does to a claim. A liability target is a judgment about exposure, and what a creditor can reach varies by state, so an agent or attorney can fit the number; the How much liability and umbrella coverage do I need? goes further. Finally, ask about ordinance or law coverage and extended replacement cost, which the tool only mentions.