How much homeowners insurance do you need?

Most insurance experts recommend that you should have between $300,000 and $500,000 worth of coverage, depending on how much your house is worth. When people discuss how much their liability limit is or how much coverage their homeowners' insurance policy has, they usually mean how much the insurance company would pay in order to rebuild the house, according to the cost of construction material and labor. To figure out how much this should be, multiply the total square feet in your house by how much building costs per square foot are in your area. This isn't the same amount it would take to buy a new house, which costs more, as it includes the land the house is on as well.

The garage is usually covered for 10 percent of the amount of the house, and coverage for belongings is around 50 to 70 percent of the amount that the house is covered for, with a possibility for increasing one's coverage for particularly valuable belongings. If you want more coverage than what your policy offers, you can either pay higher premiums or take out an umbrella policy, which is a policy that will pay money after you reach the limit on your homeowners insurance.

That brings us to the difference between how much an item is worth and how much it would cost to replace it. Generally, electronics depreciate quickly, so although a computer or stereo may not be worth what you paid for them five years ago, they probably cost a lot more to replace. In such a case, you'd want to pay around 10 percent more for a policy that pays according to "replacement value" rather than according to actual cash value.