What is dwelling coverage?

What does dwelling insurance cover?

Dwelling coverage is listed as Coverage A on your policy, and protects the physical structure of your house and anything permanently attached to it. It covers damage to your roof, walls, floors, windows, built-in systems and attached structures after events such as fire, wind, hail or vandalism, unless the cause is excluded.

“Dwelling coverage is the replacement cost coverage for your home. It is listed as “Coverage A” on the declarations page of your policy,” says Mark Friedlander, director of corporate communications for the Insurance Information Institute. “Dwelling insurance typically helps cover the home you live in plus attached structures, such as an attached garage”.

A standard homeowners policy comprises a few different types of coverage rolled into one policy, but dwelling coverage is the most important component.

Your dwelling coverage limit should match the replacement cost of your home, which is the cost of rebuilding your home at today’s prices. A standard homeowners insurance policy (HO-3 policy) includes replacement cost coverage for your home rather than actual cash value, which is the depreciated value of the home. An HO-3 policy is an all-perils policy, which means anything that isn’t specifically excluded is covered.

If you are a landlord or stay in a house only for a few months, you may only need a dwelling fire policy (DP-1, DP-3). These dwelling policies only cover damage to the house from named perils (only those listed are covered) and don’t include other coverage found in a homeowners policy, like personal property coverage.

What is not covered by dwelling coverage?

Dwelling coverage does not cover detached structures or personal belongings; these fall under other sections of a homeowners insurance policy. Standard policies exclude damage from floods and earthquakes. Maintenance problems, pest damage, and sewer backups are also excluded.

Dwelling coverage does not cover:

Other structures on the property, such as sheds, fences and swimming pools. These are covered by a separate part of your policy.
Your personal property, which includes everything you own that is not part of the home itself
Floods or earthquakes. There are other exclusions on most policies, such as acts of war or terrorism, normal wear and tear, water and sewer backup and termites or other pests.
The land. Homeowners insurance doesn't include land value.

Coverage for some exclusions can be added with an endorsement for an additional cost.

What type of dwelling coverage do you need?

The type of dwelling protection you need depends on the property you own and how you use it. A primary residence, rental property, and condominium require different policies because you are responsible for different parts of each property.

There are a few types of dwelling coverage:

If you own a home. On your homeowners policy, dwelling coverage is listed as Coverage A. It’s one of several types of coverage within your policy. Combined with the “other structures” section, it helps rebuild every aspect of your home and replace the contents.

If you own a rental property. Dwelling coverage for landlords and people who own rental property is often sold as a DP-1, DP-2, or DP-3 policy. It only covers damage to the structure of the building due to certain named perils.

If you own a condo. Your condo policy may include some dwelling coverage, but not as much as if you own a home, since you aren’t responsible for insuring the structure itself, only items on the inside.

How much dwelling coverage do I need?

You need enough dwelling coverage to rebuild your home at current construction costs if it is destroyed by a covered peril. Your limit should account for your home's size, materials, design, and local rebuilding costs. It should not be based on your mortgage balance, purchase price or current real estate value.

While your insurance company will recalculate the replacement cost each time your policy renews, things can change in the meantime.

You can better protect yourself with either of these endorsements:

Extended replacement cost coverage, which increases your coverage by a specified percentage over the calculated replacement cost
Guaranteed replacement coverage, which guarantees that the full replacement cost will be paid, regardless of how much over the limit it goes.

What are dwelling coverage limits and deductibles?

Your dwelling coverage limit is the most your policy will pay toward covered structural damage, subject to the policy's terms. Your deductible is the amount you pay toward a covered property claim before insurance pays its share. A higher deductible can lower your premium, but it increases your out-of-pocket cost after a loss.

For example, if you have a $1,000 deductible and an eligible covered claim totals $10,000, you would pay the first $1,000, and the insurer would pay the remaining covered amount.

Read your policy very carefully and ask a lot of questions to make sure you have the right amount of coverage for the size, age, and condition of your home.

Remember, if you have a major event like a fire or storm, you want to be able to rebuild your home if necessary. Your dwelling coverage should be high enough to do so.

How is dwelling coverage determined?

Insurers determine your dwelling limit by estimating the cost to rebuild your house using materials of a similar kind and quality. They look at your home's size, construction, roof, rooms, finishes, and special features.

Factors used to calculate this amount include:

The square footage of the home
Construction materials inside and out
The number of bathrooms
Features like fireplaces, decks and porches
The grade of fixtures like counters, lighting, and flooring

For the dwelling coverage on a condo, the number should be much less because your condo association’s master policy covers a portion of the repairs. A good estimate is about 20% of your unit’s value or what your lender requires.

It's important to remember that dwelling coverage is not related to the market value of your home.

FAQ: Dwelling coverage

What is increased dwelling protection coverage?

Increased dwelling coverage protects you against gaps in your policy in case inflation or increased prices for building materials cause your home to become underinsured. It’s often offered as an endorsement.

Do I need increased dwelling protection?

You may need increased dwelling protection if you live in a disaster-prone area, such as one subject to wildfires or hurricanes, which drive up demand and prices for building materials and labor. It’s a good idea for anyone to carry extended replacement cost coverage, as price increases can’t always be predicted.

Why is my dwelling coverage so high?

Your dwelling limit may be higher than you expect because it is based on rebuilding costs, not what you paid for your home or what it could sell for today. Labor, materials, demolition, your home's design, and local construction costs all affect the estimate. The value of your land is not included.