How Much Home Insurance Do You Actually Need?
TL;DR How much home insurance do I need?
Homeowners in Canada need enough home insurance to cover most or all of the full cost to rebuild their home against many types of losses.
To determine how much home insurance you need, you’ll need to think about:
- Coverage limits: The maximum dollar amount your policy will cover for various types of claims
- Coverage level: The specific perils your policy covers and excludes
- Optional coverages: Endorsements, floaters, and add-ons that can customize, extend, or add to your coverage
1. Coverage amount: How to set the right coverage limits for your policy
Your homeowners insurance will cover up to certain monetary limits, which you can set when you purchase the policy and adjust as needed later on. The two most important limits are your dwelling coverage limit and your liability limit.
Dwelling coverage
Calculating the correct limit for your dwelling coverage isn’t as simple as buying a policy worth the purchase price you paid for your home. Your dwelling coverage limit should reflect the realistic cost to rebuild your house from scratch.
Your home’s replacement cost is different from its market value and may depend on:
- Age of the home
- Average price of construction and labor in your area
- Construction materials
- Total square footage
- Number of rooms
- Number of stories
- Architectural style
- Unique interior features such as built-in furniture or custom flooring
- Upgrades, renovations, or additions to your home
A trained insurance advisor can help you estimate the total replacement value of your home through a series of questions about the dwelling’s age, construction, and condition. You may also be able to get a rough ballpark estimate of rebuilding costs per square foot by researching local construction costs in your area.
Bottom line: Aim for a dwelling coverage limit that equals 100% of the cost to rebuild your home. If you’re trying to save money, keep in mind that your mortgage lender may require you to carry at least 80% of the total rebuilding costs.
Liability coverage
Personal liability coverage for home insurance typically starts at a minimum of $1 million.
While that may seem like a high amount, the reality is that liability insurance is designed to cover catastrophic scenarios that carry high costs. If you’re held financially responsible for an incident that disables another person permanently, a $1M liability policy could quickly dry up.
Most experts recommend raising your home insurance policy’s liability limit to at least $2 million, with $5 million often recommended for high earners.
Limits on other coverage
Coverage limits for other parts of your home insurance policy, including personal property or contents coverage and additional living expenses, are often expressed as a percentage of your dwelling coverage limit.
- Detached structures: Typically 10% of dwelling coverage limit
- Contents: Typically 50–80% of dwelling coverage limit
- Additional living expenses/loss of use: Typically 20–30% of dwelling coverage limit
When setting coverage limits, ask if your policy covers your property’s replacement cost or only its actual cash value (ACV), or the purchase cost minus depreciation. Replacement cost coverage costs more but can maximize your protection.
2. Coverage level: What risks should you be insured against?
Your amount of coverage also depends on when the coverage applies—that is, which perils your home and personal belongings are insured against.
Standard home insurance policies in Canada virtually always include coverage for fire, theft, windstorms, hail, and certain types of water damage, along with several other basic perils. Flood, earthquakes, and sewer backup, on the other hand, are often excluded from standard home insurance coverage.
You can choose how broad or narrow to make your coverage when you purchase a home insurance policy. The table below compares three types of coverage available to most Canadian homeowners.
3. Optional coverage: Endorsements, floaters, and customization
In addition to customizing the coverage level of your standard home insurance policy, you may have the option to add endorsements or floaters to your core coverage to extend and supplement your home insurance.
Common additional coverage options include:
- Personal articles floaters: Some high-value items, like jewellery and collectibles, won’t be fully covered by basic personal property insurance. Floaters or riders on your policy can extend the coverage limits for these specific items to better reflect their actual cash value or replacement costs.
- Flood insurance: Overland flood protection is available as an optional add-on for most residential insurance policies.
- Sewer backup coverage: Because this is a common exclusion from home insurance policies, you can purchase sewer backup coverage as an optional add-on.
- Home business protection: If you run a home-based business, your regular home insurance may exclude coverage for business equipment or liability related to the business, so ask your insurance agent if you need additional coverage.
You can also customize your deductibles and bundle your home insurance with your auto insurance policy to keep claims simple and costs low.
Buying your home and auto insurance from the same insurance company comes with multiple benefits.
- Insurers may discount your home insurance premiums by up to ~20% when you bundle your coverage with an auto policy.
- Bundled insurance makes claims simpler, especially after an event such as a storm or fire that may cause both vehicle and property damage.
- Dealing with a single insurance company allows you to build trust with agents, advisors, and adjusters.
Why underinsuring your home creates real risk
Not buying enough home insurance could lead to major financial problems if your home is damaged or destroyed by a covered peril such as fire, home break-ins, or windstorms.
A 2024 report by the Canadian Association of Financial Institutions in Insurance found that 50% of Canadian homeowners are underinsured.
The most obvious risk of underinsuring is too little coverage in the event that you need to make a claim. If you don’t carry enough dwelling coverage to match your home’s full rebuilding costs, you could face steep out-of-pocket costs if your home is destroyed.
You may also face administrative costs and major delays in the claims process if your coverage limits fall short of what’s needed to rebuild or replace your property.
How to choose the right amount of home insurance
Every home is different; so is every homeowner. To choose the right amount of home insurance coverage, it’s important to consider your full financial picture, including savings and emergency funds, as well as your home’s condition and your overall tolerance for risk.
Basic coverage at the lowest price available isn’t the best option for most homeowners, but neither is a tricked-out policy with every available add-on, floater, and bonus. Most homeowners’ actual insurance needs will fall somewhere in the middle of that spectrum, but pinpointing exactly how much coverage you need can be a challenge.
PolicyMe helps homeowners tackle that challenge head-on by including a call with a licensed advisor for all customers who compare home insurance quotes through our platform. Our advisors are trained insurance experts who don’t work for any specific insurance company, so they’re well-positioned to offer uniquely helpful and unbiased advice as you weigh the different types of home insurance available to you.
We’ll review your coverage options before you buy so that you can move forward with peace of mind, knowing you’ve got the right coverage level at the right price.
FAQ: How much home insurance do I need?
This article is for general information only and is not insurance or legal advice. Examples and any sample quotes or rate ranges are illustrative and do not constitute an offer or guarantee of coverage, price, or eligibility. Actual coverage, discounts, and premiums depend on your individual circumstances and the insurer provider; if there is any discrepancy, your policy and insurer documentation govern. For advice about your situation, speak with one of our licensed insurance professionals.