What is dwelling coverage?

What does dwelling insurance cover?

Dwelling coverage covers the structure of the home and everything attached to it, such as decks or attached garages.

“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?

The dwelling coverage portion of a homeowners insurance policy doesn’t 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?

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 D-P3 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 from the ground up at today's prices. The replacement cost of your home changes over time in response to inflation and increased construction costs.

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?

The dwelling limit is the maximum amount the insurance company pays out in the event of a claim. The deductible is the amount you have to pay out-of-pocket if you file a claim.

You will choose a deductible when you purchase your insurance policy.

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?

Dwelling coverage is determined based on the replacement cost of the home. 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 floods, wildfires or hurricanes, which cause increased demand and pricing 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 coverage is high because it's based on your home's replacement cost, not its market value. It can cost much more to rebuild your home than the amount you paid for it.

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