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What is the 80% rule in homeowners insurance?
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What is the 80% rule in homeowners insurance?

I got a new home insurance policy and was reading the finer details and saw some warnings about an "80% rule" - I don't understand their definition or what it means. My coverage states my house is insured up to 150% of the "dwelling coverage." What does this mean?

Austin, TX

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Ava Lynch

Senior Analyst

  • Licensed Insurance Agent — Property and Casualty

Ava joined The Zebra as a writer and licensed insurance agent in 2016. She now works as a senior analyst, providing insights and data analysis as one…

That's a good question! The 80% rule in a home insurance policy is meant to encourage homeowners to insure their home up to (or greater than) 80% of the dwelling coverage. Ideally, you are insuring your home up to 100%+ but 80% is their minimum. If you are insuring your home lower than 80%, you are risking inadequate coverage and paying for damage out of pocket.

The best way to understand this is through an example.

Consider you own a home that should be insured with $100,000 in coverage — $80,000 as a minimum with this rule. However, you elect to only pay for $70,000 in coverage. In the event a fire damages your home and causes $40,000 in damage, this is how the 80% rule would factor into your reimbursement:

How does the 80% rule work — Simplified Example
How much insurance should you have? $100,000
Minimum amount of insurance you should have? $80,000
How much insurance do you have? $70,000
What percentage of your home is covered? $70,000 of $80,000 = 87% covered
How much would you get reimbursed in this claim? 87% of $40,000 = $35,000
How much would you be responsible for out of pocket? $5,000

As you stated, your home is covered up to 150% of the dwelling amount so this is not something you should be considered about. However, it is a good example of why it is so important to properly insure your home.

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