How To Estimate Your Home Insurance Costs

Whether you’re shopping for your first home insurance policy or you just moved to your forever home and want to make sure it’s fully insured for the long haul, you want to know how much coverage to buy.

You might use a homeowners insurance calculator or ask your insurance agent for a home insurance estimate, but you don’t want to leave all of the legwork up to others. If you do, you could be left without enough coverage — only to find out just when you need it most, after disaster strikes.

To help yourself out, you want to know how to create an accurate homeowners insurance estimate. And that comes down to knowing what a typical policy covers, which additional coverages you might need and how your policy will pay out after a covered loss. With these things, which you’ll learn here, you’ll be a walking homeowners insurance calculator.

[ Read: The Best Homeowners Insurance Companies ]

In this article

    Why it’s great to know how to estimate when shopping for homes 

    Coming up with a home insurance estimate isn’t just a fun number-crunching exercise. It’s a critical component of knowing how much home you can afford — and where to buy it.

    Your homeowners insurance payment won’t be as hefty as your mortgage, certainly, but it is an additional cost of homeownership that you need to factor in. And certain homes cost more to insure than others. Some things that could leave you with pricey premiums include:

    • A home in an area with a lot of crime
    • A home in an area prone to natural disasters
    • An old roof
    • Lackluster fire suppression systems
    • A pool (because of the increased liability that someone could drown)

    Generally, if you want to keep your home insurance costs low, you should look for a home with limited risk. That means one located in a safe area that’s protected from natural disasters. It means choosing a home without aging systems — or planning to replace them right away. And it probably means skipping the pool.

    Typical home insurance 

    Aside from avoiding high-risk homes while you’re house shopping, the next biggest thing you can do to get an accurate home insurance estimate is understand the different types of available coverages — and roughly how much you’ll pay for each.

    As a quick primer, home insurance policies generally cover:

    • Your house itself
    • The personal property you store in it (up to your policy limits)
    • Unattached structures like fences and garages
    • Your liability in certain instances, like if a neighbor slips at your home and sues you
    • Extra expenses you incur if you get displaced by a covered cause and have to stay in a hotel (i.e., loss of use coverage)

    But the times when a home insurance policy will kick in to cover the above varies from policy to policy. Different types of home insurance policies cover different things.

    An HO-1 policy, for example, only insures you against the perils specifically named in your policy (e.g., fire, theft), while an HO-5 policy will insure you against everything unless it’s specifically named as an exclusion in your policy.

    As is true will all insurance products, the more protection you buy, the more you’ll pay for it. To get a solid homeowners insurance estimate, it can be helpful to decide which type of policy is right for you before house hunting. That way, you can compare the cost of that policy type across any homes you’re considering.

    Additionally, you need to consider any additional coverages you might need for your home. Almost all home insurance policies specifically exclude earthquake and flood coverage. If you live in an area prone to either and want insurance for that risk, you’ll need to buy a separate policy. Factor that into your overall home insurance estimate.

    [ Read: The Complete Guide to Homeowners Insurance ]

    How home insurance varies by state

    You can use a homeowners insurance calculator to get a rough idea of your home insurance costs, certainly. But there’s one key issue there.

    Many calculators don’t take location into account. And insurance needs vary depending on where you live. We’ve already mentioned that you might need flood or earthquake insurance, depending on your location. But even standard homeowners insurance coverages can cost more or less, depending on your location.

    Standard home policies include tornado coverage, for example. While homes are generally cheaper in Kansas than in, say, California, the cost of home insurance might not be too different from a coastal home if you’re house hunting in Tornado Alley.

    All told, if you’re trying to come up with a homeowners insurance estimate, it’s important to understand how much coverage costs locally. Don’t worry: we’ve got you covered. Here’s a quick list of the average home insurance cost by state.

    Replacement cost coverage: How does it work? 

    Now you have a handle on some of the key components of an accurate home insurance estimate: high-risk factors that can raise costs, the type of policy you need and how your location affects your coverage and premium.

    But there’s one final piece to consider. When you buy a homeowners insurance policy, you get either actual cost value (ACV) or replacement cost coverage. ACV factors in depreciation. So if your five-year-old couch gets destroyed in a fire, you’ll only get paid enough to buy what it was worth today. If you want enough money to replace the item with one of a similar quality, you’ll need replacement cost coverage.

    When it comes to home policies, you’ll usually get replacement cost coverage automatically for your dwelling itself and the other structures on your property. That said, you can opt for extended or guaranteed replacement cost coverage, which offers money above your dwelling limits in case the rebuild costs more.

    When it comes to your personal property coverage, you’ll generally need to elect to get replacement cost coverage. You’ll pay more for it, but it can help you rebuild your life the way it is now after a disaster.

    [ Read: How to Find Cheap Homeowners Insurance ]

    We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Kacie Goff

    Contributing Writer

    Kacie Goff is a personal finance and insurance writer with over five years of experience covering personal and commercial coverage options. Kacie founded Jot Content, a full-service content agency, in 2018. She lives in Ventura, CA, with her husband and dingo-look alike dog, Babou. When she’s not writing, you can find Kacie practicing yoga, working in her garden or scoping out a new happy hour.

    Reviewed by

    • Nashalie Addarich
      Nashalie Addarich
      Insurance Editor

      Nasha Addarich is an editor at The Simple Dollar and a former attorney who specializes in home insurance, auto insurance, life insurance, and savings. She is a former contributing editor to Reviews.com.