There is no single number that can correctly quantify the amount of insurance that would be right for any and all houses. The amount of insurance that will work for you may not work for someone else. It's however important to ensure that you don't get too much or too little insurance on your home. Under-insuring your home will leave you with a deficit if disaster strikes and over-insuring will be an unnecessary expense.
Types of Coverage
A typical home insurance policy will cover six main things:
Dwelling and Personal Possessions Coverage
Dwelling and personal possessions are the greatest determining factors for how much insurance you should take out. The coverage for dwelling should be enough to cover the cost of completely replacing your home in case it's completely destroyed. Even if such an event is highly unlikely, should it happen, you will not want to have an insurance that leaves you short.
It's not easy to determine the exact value of the personal possessions in your home. A recommended guideline is 50-75% of the dwelling coverage. The cost of furniture, electronics and other items can be significant.
Deciding on the Ideal Deductible
The deductible is what you'll pay before insurance can come in to cover the rest. It's a good idea to go for the highest deductible that you'll be able to afford in order to reduce your monthly payments. Just don't bet more than you can lose in order to reduce your upfront insurance costs.