Determining How Much Insurance You Need

Evaluating Your Home and Personal Property

The first step in determining how much insurance you need is to make an analysis of the value of your home (excluding the value of the land) and the personal property within it.

In determining the value of your home, you must calculate how much it will cost to replace the home if it were completely destroyed. Using formulas that take into account factors such as whether your home is made of brick or wood frame construction, total square footage, number of floors, and number of rooms, an insurance company will calculate what it believes is your home’s replacement cost value.

You may also get other estimates in addition to the insurer’ figure, for example, from a contractor at your own expense. In addition, there are websites available on the Internet that can help you estimate the replacement value of your home; the Department, however, does not endorse these.

Determining the value of your personal property requires a careful analysis on your part. You should go through each room of your house and list every piece of furniture and fixture within it.

Take Inventory

Most insurance companies issue household inventory forms which can be helpful. These forms can usually be found on the internet. Some companies have even developed free mobile apps that let you create and store your inventory online.

As you compile your inventory, supplement it with receipts indicating the date of purchase and purchase price and photographs of major items. Your inventory should be updated on an annual basis, or at the very least, whenever you purchase a large appliance or item of furniture. If you haven’t saved receipts, your insurance company will generally reimburse for “actual cash value” – replacement cost less depreciation.

You may also want to make a video compilation of your possessions. If you do, make sure all the drawers and/or doors of your furniture are open so you have a record of what is stored. It is also helpful to verbally describe major items as you record the video. When complete, make a back up of the video and store your inventory list and video in a safe place away from your home, such as in a safe deposit box, in the home of a friend or relative or in your workplace.


Once you have determined the approximate worth of your home and its contents, in most cases, your homeowners insurance coverage will be based on the home’s full replacement cost. Generally, if you purchase coverage on a replacement cost basis and insure your home for at least 80% of its replacement cost, your insurance will automatically be issued on a replacement cost basis, which means that if you suffer a loss, your insurer would pay you the amount it would cost to replace or repair your home without deducting anything for depreciation.  

If you do not insure your home for at least 80% of its replacement cost, you will not receive full payment of a partial loss to your home, as the following example illustrates:

Ms. Jones and Mr. Smith both own 15-year-old frame houses. The estimated replacement cost of each house is $100,000. Ms. Jones is insured for $80,000 (80%) while Mr. Smith is insured for only $50,000 (50%). Both homes suffer windstorm damage, which completely destroys both roofs. The cost to repair each roof is $5,000. Since she was insured for at least 80% of her home’s replacement cost, Ms. Jones will be fully reimbursed for her loss, less any deductible. However, because Mr. Smith did not have at least 80% coverage, his insurer will pay the greater of the actual cash value of the roof or the proportion of the cost to repair the roof which the total amount of insurance bears to 80% of the replacement cost of the building. The payment to Mr. Smith reflects a co-insurance penalty since Mr. Smith did not maintain adequate insurance. Assuming that the 15-year-old roof has an expected useful life of 25 years, its actual cash value is only $2,000, computed as follows:

1–15 (actual age of roof) x $5000 = $2000
25 (expected life of roof)

However, the proportional cost of repairing the roof would be computed as follows:

$50,000 (insured amount) x $5,000 = $3,125
$80,000 (80% of replacement cost)

After calculating these two formulas, Mr. Smith’s insurer would pay him $3,125, the greater amount of $2,000 vs. $3,125.

You should make sure that the replacement cost of your home is be estimated at the time you purchase or renew (generally, policies renew every three years) a homeowners policy.


Coverage for contents is usually issued on an “actual cash basis” in homeowners and tenants policies unless you purchase an endorsement covering you for contents replacement coverage. This means that your insurance company will determine any amount payable to you as a result of a covered loss by taking the current replacement cost of the contents and subtracting an amount for wear and tear, called "depreciation."

There is no set formula for calculating depreciation. Different insurers may use different formulas. This means that you probably will not receive the full amount needed to replace or repair the property that has been damaged or stolen; some insurance companies, however, offer an endorsement that provides replacement cost coverage (no deduction for depreciation) for the contents of your home. Replacement cost coverage is generally more expensive.

Maintaining Adequate Insurance

As previously discussed, if you do not insure your home for at least 80% of its replacement value, your claim will generally not be settled on a replacement cost basis. Therefore, it is important to review your homeowners policy periodically to determine whether you are carrying enough insurance to be fully covered.

The addition of a room, or other substantial home improvements, will also increase the replacement cost of your home, and you should adjust your coverage accordingly. Further, because of inflation, the replacement cost of your home generally increases each year.

To anticipate inflationary increases, most insurance companies offer policies that automatically increase the amount of insurance periodically. Regardless, you should review your policy each year to make sure your coverage is keeping pace with inflation.

Note - Hurricane season generally begins June 1 and ends November 30. It is important to review your homeowners policy and other related policies each year to ensure that you have adequate coverage in case you have a loss.