What Is Dwelling Coverage?

Dwelling home insurance coverage comes in two different coverage forms: replacement cost coverage, which is the cost to completely rebuild your home to its condition before it sustained damage, and market value coverage, which is the cost to rebuild your home to its market value before it sustained damage.

Let’s take a look at everything you need to know about dwelling coverage, including a breakdown of coverages, how much you need and more important facets that will help to familiarize you with one of the most important coverages in your home insurance policy.

Dwelling insurance, also known as Coverage A in your homeowners insurance policy, helps pay to repair or rebuild your home and the things connected to it if they’ve been damaged or destroyed by a covered peril.

While many people may think of the larger parts of their home, such as your roof and foundation, dwelling coverage also protects the major systems in your home, such as your electrical and plumbing. It also protects vital things that are considered to be built into your house, such as your air conditioning, water heater and wood stoves.

Dwelling coverage can go into effect, paying to repair or rebuild your house, if it’s damaged or destroyed by one of the 16 names perils, which include natural disasters like hurricanes and tornadoes, as well as events like house fires, water damage, burglary and vandalism.

However, to be covered, the damage had to have occurred suddenly and unexpectedly. So if you’re cooking and accidentally start a kitchen fire that burns up half the kitchen — or worse, the entire house — that would likely be considered an accident. In that case, your dwelling coverage would help get your life back on track by paying to repair or rebuild your kitchen or your entire house.

On the other side of the coverage spectrum, let’s say a hurricane comes rolling through, ripping off part of your roof and your home’s siding. You’d also be covered for that damage because it happened suddenly and unexpectedly.

Your homeowners insurance dwelling coverage would then pay to repair your roof and siding or put an entirely new roof and siding onto your house. It’s imperative to know that dwelling coverage only applies to the things that are considered to be a part of your home’s structure, and the perils are limited by your insurance coverage. Let’s look at some things that aren’t covered.

Things that are connected to your house, but that aren’t considered a part of your house, won’t be covered by homeowners insurance. So antennas, satellite dishes and fences are not covered by the dwelling portion of your home insurance policy because, even though they may be connected to your home, they’re not necessary to it.

Coverage for those items may fall under your policy’s other structures coverage, which is designed to provide coverage for structures on your property that aren’t connected to or aren’t deemed to be a vital part of your house.

Only certain perils are covered as well. So it’s important to know that Coverage A doesn’t protect your house against major natural disasters like floods and earthquakes. To protect your house against damages from them, you’d need separate policies for flood insurance and, if you live in an area prone to earthquakes, earthquake insurance.

Your policy’s dwelling coverage also doesn’t protect your home from damages caused by normal wear and tear and problems that have been caused by negligence, such as dry rot, termite damage or mold situations.

Depending on where you live, you’re probably not covered from damage caused by sinkholes, either. Although Floridians who experience sinkhole activity on their property that destroys a large portion of their home may be partially or fully covered by their policy in some situations. It’s always best to check with your insurance agent to see what is and isn’t covered.

In terms of things located on your property, your personal items aren’t covered by your Coverage A dwelling portion. For instance, things like lawnmowers and tools, interior and exterior furniture, clothing and electronics would be considered personal belongings and, therefore, would be covered under the Coverage C portion of your policy.

You need your dwelling coverage amount to match or exceed the amount it would cost to completely rebuild your home. If your home is worth $200,000, you need to have a minimum of $200,000 in dwelling insurance coverage. If your home is worth $400,000, you need to have at least $400,000 in dwelling insurance coverage.

Let’s say your house is worth $200,000. If you only have $150,000 in dwelling coverage and your home is destroyed, insurance will only pay $150,000 to rebuild your home. If the cost to rebuild costs $200,000 to rebuild, the remaining $50,000 would come directly out of your pocket. That’s why having adequate dwelling coverage is vital.

Since home prices continuously go up, it’s always a smart idea to have at least 5% more in dwelling coverage than your home’s current value. So a homeowner with a $200,000 house may want to invest in $210,000 in dwelling coverage to be safe.

Every person needs a different amount of dwelling coverage because it’s based on the value of your house. Getting enough coverage probably won’t be too difficult because many insurers require insurance to value on the dwelling portion of their policy.

Plus, if you still owe a mortgage on your home, your lender will require you to purchase and show proof of adequate homeowners insurance as long as you owe money on your mortgage. If you own your house outright, you aren’t required by law to have homeowners insurance, but we highly recommend keeping coverage.

Within your dwelling coverage policy, each policyholder may choose to insure their home with replacement cost coverage or market value coverage. Each proactively protects your home from covered perils, but each has its own definitions and stipulations for coverage. Let’s take a look at each.

Dwelling replacement cost coverage is the most straightforward option of Coverage A. If your home is destroyed by a covered peril, replacement cost coverage will pay the entire amount it costs to rebuild your home — whether that amount is above or below your home’s actual value — up to your policy maximum.

Replacement cost coverage is the more comprehensive protection of the two, as it covers the entire replacement cost of the home if it were damaged or destroyed, without factoring in the value of the land it sits on. This coverage is recommended and often costs more than market value coverage.

Dwelling market value coverage insures your home up to its market value before it was destroyed. So there’s a chance the market value of your home is lower than the amount it would take to rebuild it. If you have $200,000 of market value dwelling coverage on a $200,000 home that gets destroyed and costs $220,000 to rebuild, you’d be stuck paying the remaining $20,000 out of your pocket.

To get an accurate representation of how much it would cost to rebuild your home, consult a local contractor or home builder to conduct an inspection. They’ll be able to factor in any values that may increase the rebuild price, such as custom-built floors or windows, local construction and labor costs and many more things that people outside the industry typically don’t think about.

Dwelling coverage protects your physical home structure and many things connected to it, including a garage and porch, windows, doors, roof, chimney, fireplace, carpets, floors and so on.

Since your home’s dwelling coverage applies to the physical structure of your home, it only relates to personal property that’s built into its structure, like a built-in bookcase and cabinets. It doesn’t apply to things like a mounted TV, surround sound system or furniture because those items would fall under your policy’s personal property coverage.

Extended dwelling coverage, also called extended replacement cost, is additional protection that factors in appreciation. It’s usually 125% to 150% of your home’s actual replacement cost. So if you’re conducting a home insurance review yearly like you should, adding extended dwelling coverage is a surefire way to ensure your house is protected if it gets destroyed.

You can read about everything that’s covered and not covered in your home insurance policy by clicking the article links below: