Home insurance 80% rule.

Worked example

Replacement cost is $400,000, so 80% is $320,000 of required coverage. You carry $240,000, which is 75% of what is required ($240,000 / $320,000). A $50,000 loss is scaled to $37,500, less the $1,000 deductible, for a payout of $36,500. You pay $13,500 yourself, of which $12,500 comes from being under 80%. Had you carried $320,000 or more, the payout would have been $49,000.

How it works

Required coverage = replacement cost x 80%. If your limit meets it, the loss is paid up to the limit, less the deductible. If not, the payout is (limit carried / coverage required) x loss, less the deductible, and never more than the limit. Liberty Mutual describes the 80% rule this way and notes the reduction applies to any covered claim, not only total losses.

Sources and basis (opened 2026-10-08): the formula and 80% threshold follow the description in Liberty Mutual, “What is the 80% rule for home insurance?” (page updated September 14, 2026).

FAQ

What is the 80% rule in home insurance?

It says your home should be insured for at least 80% of its total replacement cost. If you fall below it, the insurer may pay only a reduced percentage of a covered claim.

Does the 80% rule apply to small claims?

According to Liberty Mutual, the reduction applies to any covered claim, not just a total loss.

How is the payout calculated below 80%?

The payout is the coverage you carry divided by the coverage required, times the loss, less the deductible. This calculator uses that method.

Is replacement cost the same as market value?

No. Market value includes land and what a buyer would pay. Replacement cost is the cost to rebuild with current materials and labour.

Does my policy use the 80% rule?

Not every policy does. Some use a different percentage or other wording. Read your policy or ask your insurer, and change the required percentage here to match.