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Why You Should Buy More than the Minimum Homeowners Insurance

With homeowner’s insurance, the biggest risk you can take is not having enough. Learn why it’s a smart decision to buy more than the minimum policy.

Under-insuring Your Home is One of the Most Common and Costliest Mistakes

When disaster strikes, it can bring waves of sad stories involving homeowners discovering that their insurance policies didn’t cover them for as much as they expected. In the end, this could mean fairly significant and unanticipated expenses. As a rule, most homeowners would prefer to know now what’s covered (and what’s not) rather than finding out after filing a claim and learning that the insurance company doesn’t cover specific things.

If you’re out shopping for a new home this spring season, or if you’re already in your home and will be anticipating the potential big summer storms, then now is the time for you to get proactive about your homeowners insurance policy.


The 80% Rule of Homeowners Insurance

Many homeowners only buy enough insurance to cover their mortgage. But at most, your mortgage may only represent 80% to 90% of the total value of the house, depending on the original down payment you made. And the truth is, it may amount to  less if your home has gone up in value. Because of this, a minimum home insurance policy doesn’t tend to be enough for you to recover in full if the worst should happen.

The 80% rule is one reason why it is so important to base the amount of homeowners insurance coverage you purchase on the replacement value of your home, and not just on your mortgage. This refers to the rule that most insurance companies will not fully cover the cost of any damages to a house due to an insured event (e.g. fire or tornado), unless the homeowner has insurance coverage equal to at least 80% of the house’s total replacement value.

You’d Be Surprised What Isn’t Covered by Many Insurance Policies…

With insurance there’s definitely a reason why people say: Always read the fine print! Here are four common events that homeowners deal with every year that are not covered under standard homeowners insurance policies.

dangers of underinsurance


Most homeowners will be shocked to discover that standard homeowners insurance doesn’t cover flooding, including any damage due to flooding from a hurricane. If you live near a lake, river, flood plain or by the ocean, you are at prime risk if you don’t have flood insurance. You may even be required to have flood insurance to get a mortgage in certain places.

Determine whether you need extra coverage by visiting the National Flood Insurance Program’s site,


Just because you may not live in California doesn’t mean you can live without this extra kind of insurance. Earthquakes happen in every state, but also do not tend to be covered under many standard policies.

Think you’re earthquake savvy? Did you know that Alaska is more seismically active than any other state in the U.S., and in 2015, Oklahoma had more earthquakes than California? Even if you don’t live near a fault line, many areas experience more seismic activity as a result of increased oil drilling or fracking, putting your home potentially in danger if your insurance is incomplete.

Sewer Backup

These smelly messes can happen to anyone, and are often the result of large downpours. A backed-up sewer can ruin your floors, walls, electrical system, and personal belongings, leaving you with a potentially uninhabitable home.


This sneaky intruder can hide behind your walls, as well as in your ceilings and floors. Worse yet, mold can live there for months or years before you ever discover it. Then one day, you start a DIY project or make some minor home improvements, and there it is.

Typically, whether your insurance policy covers the damage will depend on the source of the water that caused the mold. Even policies that cover mold will often limit the payout to amounts in the neighborhood of $10,000. Ask anyone who’s had to rip out a kitchen or bathroom due to a leaky pipe if $10,000 is enough to cover the costs, and you’ll know why additional insurance is a smart idea.

Remember: you can always purchase a rider to add or extend coverage for potential mold issues in your home.

dangers of underinsurance

How Much Homeowners Insurance Do I Need?

Most homeowners will want to have enough homeowners insurance to cover the costs associated with the following:

Rebuild the structure of your home (extended dwelling coverage)

This means the total cost to build an exact replica of your home, including materials and labor in your area.

Replace your belongings (personal property)

There is often a limit to the coverage damaged or stolen high price items such as jewelry, guns, computers, and other high-end equipment.

Cover injuries or damages that may happen on your property (liability)

Most experts recommend $300,000 to $500,000 of liability coverage.

Reimburse your living expenses in the event you lose your home (additional living expenses)

ALE is like a super emergency fund. If a disaster destroys your home or leaves it uninhabitable, ALE would reimburse you for the added cost of living without a home. This includes lost income from any renters on your property.

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Ben is a real estate agent and freelance writer. He's lived on the east coast his entire life and is just as "at home" on a snowboard as he is in the office. When not writing about local real estate markets and researching hot new tips for homeowners, he can be found working on his home renovation projects with help from his wife Melissa and their kids, Josh and Cheyenne.

One Reply to Why You Should Buy More than the Minimum Homeowners Insurance

  1. I was not aware that sewer backup can ruin your floors, walls, electrical system, leaving you with an uninhabitable home. My brother is thinking about buying his first house, and we are looking for advice to help him choose the right insurance coverage. I will let him read your article to help him understand the benefits of homeowner’s insurance.

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