Whether you already own your house or you're planning on purchasing a new one, it’s important to understand how homeowners insurance is calculated. Getting a rate estimate can be particularly helpful for determining if a certain home or location works (or doesn't work) for your budget.
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For an accurate estimate of how much coverage you need and how much it will all cost, use our free homeowners insurance cost calculator.
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Is there a formula to calculate homeowners insurance?
According to the Federal Reserve, the insurance premium for a home is roughly 0.35% of its market value. [1] Using this method, a home with a market value of $400,000 would have a home insurance premium of more or less $1,400.
However, keep in mind that this is a very rough estimate and we don't recommend that you use this method when estimating your homeownership expenses. The amount that you'll ultimately pay for home insurance depends on the home's location, your credit and claims history, the amount of coverage in your policy, and several other factors.
Why you can trust Policygenius
As an online insurance marketplace, Policygenius works closely with homeowners all over the U.S. to help them find a home insurance policy that suits their needs — without bias or favor toward any one company. Our educational guides are written and fact-checked by licensed home insurance experts and reviewed by our Financial Review Council to ensure autonomy, expertise, and accuracy. Read our methodology below.
How to calculate home insurance
Homeowners insurance rates can vary widely depending on where you live and your susceptibility to extreme weather damage or other risks. Your premiums are also based on factors that are specific to you and your property, such as your home’s estimated rebuild amount, its age and characteristics, your credit score, and how high of a policy deductible you choose.
How to calculate homeowners insurance costs in 5 steps
Estimate your coverage amounts
Choose a policy deductible
Get quotes from a home insurance marketplace
1. Estimate your coverage amounts
While home insurance policies include several other coverages that protect everything from your personal belongings to liability, dwelling coverage has by far the biggest impact on your insurance premiums. The more of this coverage you have, the higher your rates will be. There are several online calculators that you can use to calculate your dwelling coverage limit, but most insurers should be able to provide you with an estimate when you get a quote.
Other than dwelling, your insurance coverages have a mostly minimal impact on your insurance premiums, especially if you opt for the default coverage amounts. But it’s important to understand how each coverage is calculated and opt for higher limits if your situation calls for it.
Dwelling: This is the portion of your homeowners insurance that pays to repair or rebuild your home if it’s damaged or destroyed by a covered peril, such as a fire or windstorm.This coverage is based on your home's replacement cost, or the estimated price of rebuilding the home at today's prices.
Other structures: Covers damage to buildings on your property that aren’t directly attached to the home, such as garages, sheds, fences, and carports. This coverage is usually 10% of your dwelling coverage limit by default.
Personal property: Helps cover the price of replacing everything inside your home after a covered loss, such as furniture, clothing, kitchen appliances, and electronics. This coverage is typically set at 50% of your dwelling limit by default, but you may be able to increase your personal property coverage limit to as high as 70% for an additional fee.
Additional living expenses: Helps cover hotel stays, dining out, dry cleaning, and other additional living expenses when you’re unable to stay at your house after a covered loss. This coverage is typically set at 20% of your dwelling limit by default.
Personal liability: Pays for legal and medical expenses if you’re found legally responsible for injuring someone or damaging their property. Most insurers offer anywhere from $100,000 to $500,000 in personal liability coverage.
Medical payments: Covers medical expenses if someone is injured at your home, regardless of who is at fault. Most insurers offer anywhere from $1,000 to $5,000 in medical payments coverage.
Learn more >> What does home insurance cover?
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2. Consider your home’s location & other characteristics
Home insurance rates are primarily based on your home’s location and risk, such as its proximity to a high wildfire-risk area or the probability of break-ins in your neighborhood or ZIP code. Homes in areas with a high rate of property crime or natural disasters will likely be more expensive to insure compared to homes in safer locations. When deciding on your next home, consider its risk and whether or not the scenic view or convenient location is worth the potentially higher premiums.
Your rates are also tied to various details and characteristics of the home's structure, such as its age, square footage, building materials, architectural style, number of rooms, roof shape and age, and the condition of its plumbing and electrical.
Homes that are larger, have outdated electrical or plumbing, or are constructed with obsolete materials will likely see higher rates since they’re either pricier to rebuild or because they face an increased risk of damage. Homes with pools, trampolines, or even dogs will also see higher home insurance rates due to the increased risk of an injury on the premises.
3. Check your credit score and claims history
Insurance companies consider homeowners with lower credit scores or multiple past claims to be riskier to insure compared to homeowners with good credit and a clean claims history. Even having one claim in the past few years or a credit score below 670 could mean higher home insurance premiums, so you’ll want to consider both of these factors when estimating your home insurance rates and deciding on a policy.
4. Choose a policy deductible
Your home insurance deductible is the amount you’re responsible for paying out of pocket on each claim before insurance kicks in to cover the remainder of the damage or loss amount. A typical policy deductible ranges anywhere from $500 to $2,000, but some companies offer deductible levels as high as $5,000.
Picking a higher deductible can lower your premiums, but it also increases how much you need to pay when you file a claim.
5. Get quotes from a home insurance marketplace
Finally, get quotes through our online home insurance marketplace, all for free and with minimal information required. All that's required is a few brief details about you and your home, and we'll send you a side-by-side comparison of rate estimates from several insurance providers.
Home insurance premiums skyrocketed again in 2023
Our 2022 Policygenius Home Insurance Pricing Report found that home insurance premiums increased an average of 12% from May 2021 to May 2022 — faster than the record-breaking rate of inflation during that span. With inflation and constructions costs showing signs of flattening out and even receding in 2023, it would have been reasonable to assume that home insurance prices may follow suit. Our latest findings suggested this was anything but the case.
From May 20, 2022 to May 20, 2023, 94% of policyholders faced a rate increase at renewal, compared to 90% of policyholders from the previous year. During this time, the average quoted renewal premium was 21% higher nationally compared to the average of what homeowners were previously paying — roughly 9% higher than the 12% increase we reported last year.
Altogether, home insurance premiums increased 35% nationally from 2021 to 2023, with homeowners in Florida (68%), New Mexico (47%), Colorado (46%), Idaho (46%), and Texas (46%) facing the biggest average increases during that span.
These states and many others with high premium increases the past few years dealt with a combination of more expensive natural disaster losses, high inflation, turbulent market conditions, and numerous other factors that caused home insurance to be both less affordable and accessible for homeowners.
Find out how much premiums increased in your state by reading our full 2023 Home Insurance Pricing Report.
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How to estimate your homeowners insurance coverage needs
To calculate how much home insurance you need, you’ll want to get an estimate of your home's rebuild value as well as the combined value of your assets. From there, you’ll have a better idea of how much coverage you need for the rest of your policy coverages.
Estimate the cost to rebuild your home
A standard homeowners insurance policy covers the structure of your home against covered disasters such as fire, lightning, and severe windstorms. To ensure you’re completely covered in the wake of a catastrophe, you’ll want your policy’s dwelling coverage limit to be high enough to cover the price of rebuilding your home from the ground up.
Also referred to as the home’s replacement cost, this amount is based on how much you’d need to pay to rebuild your home from the ground up at today’s prices with materials of similar type and quality.
Though the two are often misconstrued, replacement cost is not the same as the home’smarket value or sales price, says Mark Friedlander, a spokesman for the Insurance Information Institute. "Insurance replacement cost often differs materially from a home's market value, which includes the value of the land and is highly influenced by supply and demand."
Use the Policygenius home insurance calculator for a replacement cost estimate
For a quick and accurate estimate, use our homeowners insurance cost calculator. All you need to do is provide a few brief details about your home — including its address, square footage, and year built — and we’ll send you homeowners insurance estimates from multiple insurance companies.
Estimate the value of your personal belongings
You should have enough personal property coverage to cover the value of all of your personal belongings, including your clothes, furniture, electronics, and jewelry. The best way to find out how much personal property coverage you need is by taking an inventory of your personal belongings.
Inventories make it easy to categorize and value your possessions by room and property type, and can also come in handy if you ever need to file a claim for theft or property damage, or if you need to report losses on your tax return.
Actual cash value vs. replacement cost coverage
A standard home insurance policy covers personal belongings on an actual cash value (ACV) basis by default. This means if, say, your couch is damaged or destroyed and you file a claim, you'll only be reimbursed for the depreciated value of the property at the time of the loss.
If that doesn't sound ideal, most insurance providers will let you upgrade your personal property claim settlements to replacement cost value (RCV) for an additional fee. With RCV coverage, your insurer would reimburse you for the value of a new, similar couch at today's prices. When you receive an RCV reimbursem*nt, you'll first receive an ACV check for the item followed by its recoverable depreciation amount after you make the purchase.
Because insurance companies often calculate ACV based on an item's lifespan rather than its physical condition, ACV payouts tend to be far less compared to RCV.
Estimate the value of your assets
You’ll want enough personal liability to protect the value of your assets in case you're found legally responsible for someone else's injury or property damage and sued. To find out how much you own in assets, you'll want to take everything you own that hold value into consideration, such as your house, car, personal possessions, your 401k, liquid assets, and anything else that could be rewarded to the injured party in a lawsuit.
Common liability claims include slip and fall injuries, dog bites, pool-related injuries, and trampoline-related accidents. Between medical bills, attorney fees, and legal settlements, a lawsuit could run you hundreds of thousands of dollars — potentially putting all of your assets at risk.
Consider supplemental liability insurance
If you have more than $500,000 in assets (the maximum amount offered under most home policies), consider purchasing a personal umbrella insurance policy. Also known simply as umbrella insurance, this is a type of supplemental insurance coverage that acts as a buffer for your policy in case your liability coverage limits aren't high enough to cover the cost of a lawsuit. You can generally purchase up to $5 million (in $1 million increments) in umbrella insurance coverage.
Estimate home insurance rates by coverage level
On average, home insurance premiums differ substantially based on how much dwelling coverage is in your policy. Here’s the average annual home insurance rate for five different levels of dwelling coverage.
Dwelling coverage | Average annual cost |
|---|---|
$100,000 | $946 |
$200,000 | $1,442 |
$300,000 | $1,754 |
$400,000 | $2,481 |
$500,000 | $3,066 |
Learn more >> Average homeowners insurance cost in 2023
Home insurance rate estimates by state
Along with the price to rebuild your home, your home’s location plays a significant role in how much you’ll need to spend on homeowners insurance. Here’s the average yearly home insurance rate in each state.
State | Average monthly cost | Average annual cost |
|---|---|---|
Alabama | $165 | $1,982 |
Alaska | $117 | $1,398 |
Arizona | $147 | $1,762 |
Arkansas | $244 | $2,924 |
California | $120 | $1,436 |
Colorado | $206 | $2,472 |
Connecticut | $113 | $1,359 |
Delaware | $77 | $928 |
District of Columbia | $96 | $1,154 |
Florida | $204 | $2,442 |
Georgia | $163 | $1,956 |
Hawaii | $41 | $486 |
Idaho | $113 | $1,352 |
Illinois | $148 | $1,775 |
Indiana | $143 | $1,719 |
Iowa | $143 | $1,714 |
Kansas | $258 | $3,094 |
Kentucky | $219 | $2,622 |
Louisiana | $209 | $2,507 |
Maine | $90 | $1,076 |
Maryland | $131 | $1,575 |
Massachusetts | $107 | $1,285 |
Michigan | $129 | $1,550 |
Minnesota | $161 | $1,937 |
Mississippi | $221 | $2,655 |
Missouri | $219 | $2,627 |
Montana | $184 | $2,213 |
Nebraska | $312 | $3,741 |
Nevada | $101 | $1,209 |
New Hampshire | $81 | $967 |
New Jersey | $75 | $904 |
New Mexico | $141 | $1,686 |
New York | $95 | $1,139 |
North Carolina | $132 | $1,580 |
North Dakota | $158 | $1,890 |
Ohio | $108 | $1,297 |
Oklahoma | $353 | $4,230 |
Oregon | $75 | $905 |
Pennsylvania | $97 | $1,162 |
Rhode Island | $113 | $1,358 |
South Carolina | $141 | $1,696 |
South Dakota | $202 | $2,418 |
Tennessee | $187 | $2,242 |
Texas | $252 | $3,027 |
Utah | $77 | $923 |
Vermont | $75 | $900 |
Virginia | $111 | $1,329 |
Washington | $101 | $1,216 |
West Virginia | $122 | $1,464 |
Wisconsin | $98 | $1,177 |
Wyoming | $133 | $1,599 |
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Frequently asked questions
Why is home insurance so expensive?
There are several reasons why home insurance rates have gone up in recent years, including more severe natural disasters, high inflation, fewer carriers offering coverage in high-risk areas, and other factors.
How can I lower my homeowners insurance premium?
Increasing your policy deductible, bundling your home and auto insurance with a single company, and adding protective devices to your home like storm shutters and security systems can all get you lower premiums.
What is the rule of thumb for estimating homeowners insurance?
One quick if not imperfect way to estimate your home insurance coverage is by multiplying the square footage of your home by the average building cost per-square-foot in your area. To find out the cost to rebuild in your area, contact a few contractors in your area, get a quote, and then take the average of each one.
How do I calculate dwelling coverage for homeowners insurance?
You can calculate your dwelling coverage limit with an online dwelling coverage calculator, a professional appraisal, or by finding out the build price per square foot in your area and estimating it yourself. Regardless of how you go about calculating your dwelling coverage limit, you should make sure it's high enough to cover the home's replacement value, which is the price to rebuild it at today's prices. Your dwelling coverage limit should include the cost to replace your home's foundation, roof, frame, walls, floors, cabinetry, any additional structures that are connected to the dwelling, such as an attached garage, deck, or porch.
What is the 80% rule when it comes to insuring a home?
The80% rule (aka coinsurance clause)in homeowners insurance means that if your home or property isn't insured for at least 80% of its total replacement cost value (RCV) and you file a claim for even a partial loss, you'll only be reimbursed for an amount proportionally equal to the coverage you do havedivided bythe minimum amount required (80% of the home's RCV). For example:
Your home's RCV is $400,000
Your home's market value is $280,000
You insure the home for $280,000 to match its market value and to pay a cheaper premium
According to the 80% rule, the minimum amount of insurance you need on your home to avoid a coinsurance penalty on a claim is $320,000 ($400,000 x 0.8)
An electrical short-circuit from Christmas lights triggers a house fire, causing partial damage to your home and an estimated $150,000 in debris removal, rebuild/repairs, and smoke remediation costs
You promptly file a claim with your insurer who verifies the damage is covered and hands it off to an adjuster to determine a settlement amount
The adjuster sees that you only have $280,000 in dwelling coverage, which is $40,000 below, or 88% of, the minimum coverage amount required
Because of the coinsurance penalty for partial losses on homes insured for less than 80% of their RCV, the insurance company would pay just 88% of the damage costs, or $132,000 (minus your deductible), and you'd be left paying the remaining $18,000 yourself
Methodology
To find the average annual premium by coverage level and for each state, Policygenius analyzed home insurance rates provided by Quadrant Information Services for over 30,000 ZIP codes in all 50 states plus Washington, D.C. Our sample quotes for each company and ZIP code were for a 40 year-old homeowner with no claims history, good credit, a $1,000 deductible, and the following coverage limits:
Dwelling:$300,000
Other structures:$30,000
Personal property:$150,000
Loss of use:$60,000
Liability:$300,000
Medical:$1,000
Given the fact that both population size and premium amounts can vary drastically depending on where you live, we assigned weights to each ZIP code based on its population of homeowners, according to U.S. Census Bureau data; and to companies based on their market share presence in each state, according to Quadrant Information Services. Once weights were assigned to each ZIP code and company, we were able to calculate our national average home insurance rate.
