How to Calculate Your Ideal Home Insurance

Mar 29, 2023 | Good to Know

How to Calculate The Ideal Home Insurance for Your Home

Buying homeowners insurance might be one of the least fun aspects of owning a home, but it’s one of the most important. It provides critical protection that covers your home, belongings, and liability in unexpected events such as fire, theft, or natural disasters. Knowing what kind of homeowners insurance you need and the amount of coverage requires some thinking and calculations. Fortunately, we will cover what you need to know to get the right homeowners insurance for you.


Why Is Homeowners Insurance Important?

Your home is likely the largest investment you’ll ever make. Homeowner’s insurance provides you peace of mind knowing you’re covered against damage or destruction from various causes (referred to as “perils” in insurance jargon) such as fire, natural disasters, and theft. It can also cover your liabilities in case someone is injured on your property in the event of lawsuits or settlements.


If you have a mortgage on your home, most lenders require you to have homeowner’s insurance as a loan condition. This is because the lender wants to ensure that their investment (your home) is protected in case of damage or destruction. If you own your home outright, homeowner’s insurance is a smart purchase where you can spend a little bit of money, relatively speaking, for a lot of protection against life’s mishaps.


What Is the Average Cost of Homeowner’s Insurance?

The cost of homeowner’s insurance varies greatly depending on where you live, the amount of coverage you have, what your coverage includes, and other factors. For an easy point of reference, you can figure that homeowners insurance costs an average of $1,899 per year — about $158 per month — for $300,000 in dwelling coverage, according to a recent Policygenius analysis. The 2023 U.S. News Home Insurance Guide reports similar findings, with typical monthly policies costing $100–$170.


What Does Homeowners Insurance Cover?

A typical homeowner’s insurance policy covers your home’s structure against unexpected events like fires, lightning strikes, and severe windstorms. It’s crucial to ensure that your policy’s dwelling coverage limit is sufficient to cover the full cost of rebuilding your home in case of a catastrophic event. Here are some of the coverage you can receive with your insurance. 


  • Dwelling coverage pays for the repair or rebuild of your home after a covered loss.
  • Other structures coverage, typically 10% of your dwelling coverage limit, pays for damage or loss to structures not attached to your home, such as sheds, fences, and detached garages.
  • Personal property coverage, typically at 50% of your dwelling limit, pays to repair or replace personal belongings inside your home, like furniture, electronics, appliances, and clothing, after a covered loss. Some insurers offer up to 70% coverage, depending on your needs.
  • Loss of use coverage, usually 20% of your dwelling limit, pays for additional living expenses like hotel stays and dining out when you can’t stay home due to a covered loss.
  • Personal liability coverage pays for legal and medical expenses if you’re found legally responsible for damaging someone’s property or injuring them. Most insurers offer $100,000 to $500,000 in coverage.
  • Medical payments coverage pays for medical expenses if someone is injured at your home, regardless of who is at fault. Most insurers provide $1,000 to $5,000 in coverage for medical payments.


How Is Homeowners Insurance Calculated?

A variety of factors are used to determine homeowner’s insurance cost, including where your home is located, its size, coverage amount, how much energy you use, and more. Let’s take a closer look.


Home Location: Your insurance premium is impacted by the likelihood of burglary or damage from natural disasters, resulting in higher rates for homes in risky locations such as inner cities, coastal areas, and wildfire zones.

Coverage Amounts: The replacement cost of your home and the value of any expensive art and electronics, and the level of personal liability coverage all impact your insurance rates. A home that’s expensive to rebuild or refurnish may require higher coverage levels and, thus, higher premiums.


Home Characteristics: The age, size, number of rooms, and construction type of your home, as well as its electrical, plumbing, and roofing condition, all impact your insurance rates. Additionally, homes with pools, trampolines, or pets may incur higher costs due to the increased risk of accidents.


Deductible: A deductible refers to the amount you pay out of pocket before your insurance coverage begins to cover the remaining costs of a claim. Opting for a higher deductible will typically lead to lower insurance rates while choosing a lower deductible will result in higher rates.


Credit Score: Insurance companies tend to view homeowners with lower credit scores or a history of multiple claims as higher-risk customers. A recent claim or a credit score below 670 could lead to higher home insurance premiums.


Estimating Your Insurance

Homeowner’s insurance is sort of like Goldilocks and the three bears — not too much, not too little, but just right. In other words, you need enough coverage to replace your home and its furnishings in the event it has to be replaced, but you don’t want too much and end up paying higher premiums than necessary. The best and most simple way to ensure you’re getting what you need is for your policy to cover the rebuild cost of your dwelling. Note that it isn’t necessarily equal to its market value (generally less), including the land. 


You will also need to estimate the value of all your personal belongings within your home — clothing, furniture, electronics, jewelry, etc. Determine your coverage needs by creating an inventory of all your possessions. Categorize and value items by room and property type and take photos.


Finally, include sufficient personal liability coverage to cover the total value of all your assets, such as properties, vehicles, and personal belongings, in case of a lawsuit where you’re found legally responsible for someone’s injury or property damage. Claims such as dog bites, slip and fall injuries, or trampoline accidents are common and can result in expensive medical bills and legal fees that could put all of your assets at risk.


With an estimate of your home’s replacement cost, the value of your personal belongings, and assets, you can move on to getting a quote for the appropriate limits of coverage for your home insurance.


Get a Quote for Homeowners Insurance

There are several ways a homeowner can obtain a quote for home insurance. One option is to contact individual insurance companies directly and request a quote over the phone or online. Another option is to use an independent insurance agent or broker who can provide quotes from multiple insurance companies. Additionally, many insurance companies offer online quote tools that allow homeowners to enter their information and receive a quote instantly. It’s important to compare quotes from multiple sources to ensure you get the best coverage at the most affordable price.


Need Insurance? Look to AIG for Solid Coverage at a Fair Price

Rather than sending you off on a wild goose chase of vetting insurance companies, allow us to make a recommendation for one of our partners that we do a lot of business with at Energy Texas — AIG. AIG is a well-established and reputable insurance company with a strong financial track record, so you get peace of mind knowing that you are insured by a stable and reliable provider.


AIG offers customizable coverage options that can be tailored to fit your individual needs. Select the level of coverage that you need, as well as any additional coverage options. There are discounts and bundling options for homeowners who bundle their home insurance with other insurance products, such as auto insurance. This can save money on insurance premiums.


Also, they are there when you need them. Their reputation for providing claims handling services is excellent, so you can expect prompt and efficient processing. 


AIG has long been an industry leader in using innovation and technology to improve the customer experience. Their mobile app allows you to manage their policies, track claims, and access important documents from your smartphone or tablet.


Interested? Get more information here.

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