How Much Homeowners Insurance Do I Need?

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One of the first questions a new home buyer will ask us is, “How much homeowners’ insurance do I need?”

There is often confusion around Coverage A, also known as Dwelling Coverage, which is the amount of money you get in a total loss for you structure of your home.

The follow-up question is, “Well, this is how much I paid for a house, why is the homeowners’ insurance coverage different than what I paid?”

This is a great question, watch the video below or keep reading to find out…

How Much 

Coverage Do I Need?

The reason for the confusion in the amount of homeowners insurance lies in the difference between market value and replacement cost of your home.

Market value has to do with the plot of land that the house is sitting on, the neighborhood, the view, the city, how many people are also looking at the house, how desirable is the location?

There’s a lot that goes into the market value of a home that impacts how much you pay.

Replacement cost is what it would actually cost in real dollars to rebuild that home if it were to burn all the way to the ground (or any other total loss).

These are two very different things, it may cost $400,000 to rebuild a home but because of its location, the plot of land that it’s on, the other structures on the property, how many people are interested in that home, the community’s desirability, etc, you may pay $650,000 for that house.

So now you’re paying $650,000 but insuring for $400,000.

And the opposite can also be true, you could have a home that is one of these early 1900s brick buildings, they’re rock solid. It would cost $600,000 or $700,000 to rebuild a full masonry home today, but you may only be paying $500,000 for that home in terms of its market value.

Mortgage Company Homeowners Insurance Requirements

Your mortgage company is going to want to at least cover the loan amount.

So if you paid $650,000 and you have a $500,000 loan, your mortgage company is going to want at least an amount of coverage on your homeowners’ insurance that’s going to cover the loan amount, in this case at least $500,000 in coverage.

The Solution

My recommendation to you, is to go through the replacement cost estimator process.

A replacement cost estimator is a software program that takes the features and building materials and it runs them through a algorithm that spits out what it would cost in today’s dollars to replace your home.

This gives us a solid foundation on which to build your insurance policy.

You want to be as close to 100% of the replacement cost of your home as possible when you purchase the policy.

The Take Away

If you have questions about your homeowners’ insurance, both either a coverage or price perspective, or you want to make sure you’re working with a great company who’s always going to be there when you need them, give us a call.

We are homeowners insurance experts, it’s what we do all day long here at Western States.

You can call us at 801.798.7461 or


Thank you and have a great day,

Matt Barber

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