What Is Dwelling Coverage?

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Dwelling coverage isn’t required by law, but it can protect one of your most significant financial investments: your home. Homeowners insurance, including dwelling coverage, is often necessary to obtain a mortgage loan.

Coverage A, or dwelling coverage, is one of six coverages typically included in a standard home insurance policy. The other coverages are other structures, personal property, loss of use, personal liability, and medical payments.

Here’s what you need to know about dwelling coverage:

What is dwelling coverage?

Dwelling coverage is the portion of a homeowners insurance policy that helps cover the cost of repairing or rebuilding your home if a covered event — such as a fire — causes damage. Coverage often includes construction, labor, and materials costs to rebuild the damaged property, up to policy limits. Dwelling coverage can vary depending on the type of homeowners insurance policy and whether you’ve included any insurance riders.

Homeowners and condo owners should have dwelling coverage to avoid high out-of-pocket costs. Depending on where you live and your home type, you may want to buy additional coverage to protect your home from other disasters, such as earthquakes. If you’re a renter, your landlord is responsible for insuring your rental property structure.

Keep in mind: While your landlord will pay to insure your building, this doesn’t cover your personal belongings. You’ll need to take out a renters insurance policy to insure your personal property.

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What does dwelling insurance cover?

Dwelling coverage can vary, but most standard homeowners insurance policies provide coverage for damage from the following events, known as “perils”:

  • Fire or smoke
  • Lightning strikes
  • Windstorms
  • Hail
  • Explosions
  • Vandalism
  • Theft
  • Damage caused by the weight of snow, sleet, or ice
  • Falling objects
  • Damage from an aircraft
  • Damage from a motor vehicle

In addition to your home’s structure, dwelling coverage typically covers any attached features, such as a garage. Since coverage can vary, always check your homeowners policy to determine what is covered and what isn’t.

Learn more: What is Personal Liability Coverage in Home Insurance?

What does dwelling insurance exclude?

While dwelling insurance covers many events, it doesn’t cover everything. Some of the perils and structures generally not covered by dwelling coverage in a standard homeowners insurance policy include:

  • Flooding
  • Earthquakes
  • Sewer backups
  • Detached structures like detached garages, fences, and gazebos
Good to know: You can purchase additional coverages for things your standard homeowners policy excludes. For example if you live in a region prone to flooding or earthquakes, you may want to consider additional insurance policies to cover your home from damage. And some areas may require additional insurance. For example, if you live in a high-risk flood area, you may be required to have flood insurance.

Dwelling coverage limits and deductibles

Dwelling coverage is typically subject to limits and deductibles. Your coverage limit is the maximum amount your insurer will pay after covered damages or losses. The deductible is your out-of-pocket cost toward a covered insurance claim. So, if your deductible is $1,200, you’re responsible for paying the first $1,200 of a covered claim before your insurance kicks in.

Each area of coverage within your homeowners insurance policy has its own limit. Your dwelling coverage limit can affect other coverage limits within your home insurance policy.

For example: The limit on other structures coverage is usually a percentage of the dwelling limit. Let’s say your other structures limit is set at 10% of your dwelling coverage limit. If your dwelling coverage limit is $250,000, your other structures coverage limit would be $25,000.

How will the dwelling coverage limit affect your premium?

The amount of dwelling coverage you carry can also affect your insurance premium. Your homeowners insurance premium is the amount of money you pay, typically monthly, quarterly, or annually, to keep your home insurance policy active.

Higher dwelling coverage limits can increase your insurance premium. Higher-priced homes typically carry higher coverage limits, since they cost more to repair or rebuild. The same is true for older homes, which often face higher construction costs to replace original or outdated building materials. Consider how much coverage you’ll need and how it’ll affect your insurance premium before choosing a policy.

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How much dwelling coverage do you need?

The amount of dwelling coverage you need varies depending on your situation. It’s a good idea to get enough to cover 100% of the costs to repair or rebuild your home. That way, in the event of a total loss, you won’t have to pay a huge amount of money out of pocket.

Several factors can affect the cost of repairing or replacing your home, including:

  • Age of your home
  • Number of rooms
  • Square footage
  • Style
  • Local construction and labor costs
  • Number of stories
  • Additions and renovations
  • Other unique home features

Homeowners tend to gravitate to their home’s purchase price, or market value, but with dwelling coverage, you should be more concerned with the cost to rebuild or repair your home. Here are a few different types of coverage to consider when choosing a homeowners insurance policy:

Guaranteed replacement cost

Not all insurance companies offer guaranteed replacement cost coverage. This coverage type covers costs to repair or rebuild your home even if it exceeds your policy limits. Guaranteed replacement coverage typically has no specified limit, so if your home must be rebuilt, you’ll be completely covered.

Check out: How Much Homeowners Insurance Do I Need?

Extended replacement cost

Extended replacement cost extends dwelling coverage in the event of material and labor price increases in your area beyond the estimated replacement cost. Depending on your insurer, this could extend your dwelling coverage by 10% to 50% of the rebuilding cost.

Actual cash value

Actual cash value (ACV) coverage pays you today’s property value to rebuild or repair your home,t factoring in depreciation due to condition and age. Keep in mind that with ACV, your property value is determined at the time you buy coverage. There’s a good chance you could face out-of-pocket costs in the future, since the value of your property or rebuilding costs generally increase over time.

If you’re already a homeowner, it’s a good idea to review your homeowners insurance annually to make sure you have the right amount of coverage. Work with your insurance agent if you need to adjust coverage due to home improvements or other updates. If you’re shopping for home insurance, consider coverage options, costs, underwriting standards, and your specific needs to find the right policy for you.

Learn more: Home Insurance Replacement Cost vs. Market Value

Disclaimer: All insurance-related services are offered through Young Alfred.

About the author
Kevin Payne
Kevin Payne

Kevin Payne is a family travel and finance expert. He writes about credit cards, travel, student loans, saving money, homeownership, and career and entrepreneurship. His work has been featured in Forbes Advisor, The Ascent, FinanceBuzz, Slickdeals, Student Loan Planner, and more. He is in the process of becoming an Accredited Financial Counselor (AFC).

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