What Home Insurance Do I Need?
Dwelling coverage to rebuild the house, liability protection, and enough in personal property and loss-of-use coverage to match your lender's minimum.
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What your lender actually requires
Your lender sets a floor, not the whole answer. They'll want dwelling coverage at least equal to your loan amount, named as the lender on the policy through something called a mortgage clause, so the house itself is protected as collateral. But the loan amount and the cost to rebuild the house are different numbers, and insuring to the loan alone can leave you short if the house is ever a total loss. Liability coverage, personal property coverage and loss-of-use coverage usually come packaged in standard amounts with any policy, so you're not pricing those separately. The deductible, what you pay out of pocket before coverage kicks in, is yours to choose, and it moves the premium more than almost anything else. Your closing date sets the deadline. The insurer sends a binder, proof of coverage, straight to your lender before that date.
Two buyers closing on similar houses can end up with very different premiums, often because one priced dwelling coverage to the loan amount and the other priced it to what rebuilding actually costs. That gap matters more than any single discount. Checking a few quotes before your binder goes out shows you where your numbers land and whether you're paying for coverage that matches the house, not just the mortgage.
How much dwelling coverage is actually enough
Rebuilding cost is what dwelling coverage should match, and it has nothing to do with what you paid for the house or what it would sell for. Land holds value, materials and labor to rebuild do not track it. A house on an expensive lot in a desirable neighborhood might cost far less to rebuild than its sale price suggests, and a plain house on cheap land can cost more. Insurers estimate rebuilding cost using the home's square footage, materials, age and local construction prices, and that number is what your dwelling coverage should be set to, not your purchase price or your loan balance.
Most policies come with a few other coverages already built in alongside dwelling coverage, usually set as a percentage of it. Personal property coverage, for your belongings, is typically a portion of the dwelling amount. Loss-of-use coverage, which pays for a place to stay if the house is unlivable after a covered loss, works the same way. Liability coverage, which protects you if someone is hurt on your property or you're responsible for damage to someone else's, usually comes in a standard amount too. You can raise any of these if your situation calls for it, more belongings to cover, more liability exposure, but you're not building them from scratch.
The deductible is the one number you're actively choosing, and it's worth thinking about before you pick the lowest premium quote. A higher deductible lowers what you pay annually but raises what you'd owe out of pocket if you file a claim. Some policies, especially in areas prone to wind or hail, use a percentage deductible instead of a flat dollar amount, meaning the amount you'd owe is a percentage of your dwelling coverage rather than a fixed number. On a house insured for $300,000 with a 2% wind deductible, that's $6,000 out of pocket before coverage starts, which is worth knowing before a storm, not after one.
Two things sit outside a standard policy entirely. Flood damage is not covered by homeowners insurance regardless of dwelling coverage amount, it requires a separate flood policy, and lenders in flood zones usually require one. Earthquake damage is typically excluded too, and coverage for it is usually a separate policy or endorsement. If the house is in an area where either risk applies, that's worth asking about before closing, not something to assume your homeowners policy already handles.
What about escrow, and does it change any of this
If your mortgage has an escrow account, your lender collects a portion of your insurance premium each month along with your mortgage payment and pays the insurer directly when the bill is due. This doesn't change what coverage you need or how much dwelling coverage should be. It changes who writes the check after the first year. For the first policy, before closing, you typically pay the first year's premium upfront. That amount gets reimbursed through escrow over time or folded into your closing costs, depending on how your lender has it set up.
Escrow is also why getting the dwelling coverage number right matters beyond the binder. If you underinsure the house to keep the premium low, your monthly escrow payment looks smaller too, but it catches up with you in two ways. A claim that doesn't fully cover rebuilding costs is the obvious one. The other shows up at renewal. Insurers reassess rebuilding costs as material and labor prices change, and if your coverage was already thin, a correction at renewal can mean a bigger jump in what escrow needs to collect than if you'd started at the right number.
Some lenders also require specific things to appear on the policy before they'll release funds at closing, beyond just the dwelling amount. The mortgage clause naming the lender is one. Some want confirmation that the deductible doesn't exceed a certain percentage of dwelling coverage, since a very high deductible could leave you unable to afford repairs that protect their collateral. These requirements are usually spelled out in your loan documents or closing instructions. The title company or lender can confirm exactly what the binder needs to show.
None of this requires guessing. The settlement or closing agent coordinating your purchase typically tells the insurer directly what needs to appear on the binder and by when, and most of the back-and-forth happens between them and the insurance company rather than falling on you to track. What's worth doing on your end is making sure the dwelling coverage reflects rebuilding cost before that binder goes out, since that's the number most likely to be set wrong if it's set in a hurry.
Before the binder goes out
Check that the dwelling coverage on your quote matches what it would cost to rebuild the house, not your loan amount or purchase price. Compare a few quotes now, while there's still time to fix it.
