What is dwelling coverage?

Dwelling coverage is the portion of a homeowners policy that pays to repair or rebuild your home's structure if it is damaged or destroyed. Dwelling insurance will protect you up to the policy's limit.

The roof, foundation, floors, doors, windows, and walls make up the structure of your home. Dwelling coverage typically extends to anything attached to the structure, including garages, porches, decks, and built-in appliances and fixtures. It does not, however, include your belongings, unattached structures (such as a shed), or the land on which your home is built.

Dwelling coverage works differently in a condo insurance policy. Because most condo owners own only their own unit and not the entire building, your policy's dwelling insurance does not need to cover things like the roof or outer walls. However, depending on what your association's master policy covers, you may require dwelling coverage for your unit's built-in cabinets, appliances, and floors. Find out more about condo insurance.

Dwelling insurance is sometimes referred to as Coverage A because it is frequently the first type of coverage listed in a homeowners policy.

Is dwelling coverage required?

Though you are not legally required to purchase home insurance, your lender will almost certainly require it if you have a mortgage. This protects not only the lender's financial investment, but also yours. Imagine having to repay hundreds of thousands of dollars on a mortgage for a burned-out house with no insurance money to rebuild it.

Don't be concerned if your mortgage lender requires "hazard insurance." This is commonly referred to as dwelling coverage, and purchasing a standard homeowners policy will most likely suffice. (If you live in a high-risk area, you may also need to purchase flood insurance.)

If you don't have a mortgage, you could go without home insurance. However, unless you can afford to rebuild your home yourself after a disaster, it is probably not a good idea.

What does dwelling insurance cover?

Dwelling insurance protects you against a variety of disasters, which are referred to as "perils" in your policy. Most homeowner policies cover any disaster that isn't specifically excluded. This is known as "all risks" or "open perils" coverage. Typically, you'll have coverage for the following perils:

• Fire, lightning and smoke.
• Wind and hail.
• Vandalism.
• Freezing.
• Weight of ice or snow.
• Volcanic eruption.

As long as your homeowners policy does not specifically exclude a particular disaster, your dwelling insurance should cover it.

Condo policies and rarely sold homeowners policies known as HO-1 and HO-2 policies, on the other hand, may provide less generous dwelling coverage. These types of insurance, known as "named perils" coverage, may only cover your home for the perils listed in the policy. The above-mentioned disasters are generally included.

If condo owners want insurance for a broader range of disasters, they may be able to upgrade their policies to "open perils" coverage.

What does dwelling insurance not cover?

There are a number of disasters that your homeowners insurance will not cover, though additional coverage may be available for purchase. Here are some examples:

Flooding

If a hurricane dumps a lot of rain on your area or a nearby river overflows its banks, your home insurance usually won't cover any water damage. Those who are at risk can purchase flood insurance from either the federal government or a private company. Learn how to select the best flood insurance.

Earthquakes, landslides and mudslides

Damage caused by "earth movement," which includes earthquakes, landslides, mudslides, and sinkholes, is typically not covered by homeowners policies. Additional coverage for these disasters may be available.

Water backup

Most homeowner's insurance policies do not cover damage caused by a failed sump pump or a clogged drain. If you want this coverage, you can usually add it to your policy through an endorsement.

Maintenance or wear and tear

Homeowners insurance is intended to assist with unexpected accidents rather than routine maintenance issues. Your home insurance is unlikely to cover things like a foundation that cracks due to settling or a roof that leaks because it's 20 years old.

Infestations

Termites, rodents, and other invasive pests can cause significant damage to the structure of your home, but your homeowners insurance is unlikely to cover it. Insurers consider this type of damage to be a maintenance issue that homeowners should be prepared to pay for.

Vacancy

If you split your time between homes, or if you have a house sitting empty while you try to sell it, you may not have as much coverage as you believe. Many home insurance policies exclude certain types of claims if the home is vacant for more than 30 or 60 days.

How much dwelling coverage do you need?

If your home is destroyed, your dwelling coverage limit should be sufficient to rebuild it. This figure isn't always the same as the price you paid for the house. Instead, this figure is determined by the features of your home as well as the building costs in your area.

You can get a rough estimate of your rebuilding costs by multiplying your home's square footage by the average local building cost per square foot. (Local contractors and insurance agents may be able to assist you in locating this figure.)

This cost, however, may vary depending on the specifics of your home. Do you, for example, have high-end fixtures and hardwood floors? These are likely to be more expensive to replace than carpets and laminate countertops.

Every insurance company has a slightly different formula for calculating your home's replacement cost. The more details you can provide about the size and features of your home, the more accurate the estimate will be.

Keep in mind that the cost of rebuilding can fluctuate over time. Building costs, for example, frequently rise as a result of high demand following a hurricane or other natural disaster. Building costs have also skyrocketed in recent years as a result of pandemic-related supply chain issues. If homeowners haven't reevaluated their home coverage in a while, such increases could leave them underinsured.

Consider including one of the following to ensure that your own policy limits do not fall short:

Extended replacement cost coverage. This endorsement provides you with an additional amount of coverage, such as 25% or 50%, above your stated dwelling limit. Assume you have a $300,000 limit on your dwelling coverage. If your policy provided 125 percent replacement cost coverage — your dwelling coverage limit plus an additional 25% — it would pay up to $375,000 to rebuild your home.

Guaranteed replacement cost coverage. This endorsement is even more generous, offering to pay whatever it takes to rebuild your home, with no set limit. This option is not available from all insurers.

You should also inquire whether your insurance company automatically adjusts your coverage limits to account for inflation.

Aside from rising construction costs, you may require more dwelling coverage if you make home improvements. So, if you are remodeling your kitchen or adding an addition, notify your insurance agent.

Finally, find out if your policy covers ordinances or laws. It is worthwhile to bring your home up to current building codes during repairs or rebuilding. If your policy provides little or no such coverage, it is often possible to add it by endorsement.

How does dwelling coverage work?

Filing a claim is the first step toward receiving a dwelling coverage payout. Some insurance companies allow you to do this online or through an app, while others require you to call in your claim. You may be required to provide proof of the damage, such as photos or video. The company may also send an adjuster to inspect the property in person.

Any payout you receive will almost certainly be subject to a deductible, which is the amount you must pay. This could be a monetary value or a percentage of your dwelling coverage. For example, if you have a $1,000 deductible and your home is damaged for $15,000, your insurer will pay $14,000. You may have different deductible amounts for different types of claims in some cases.

If your roof is damaged, your insurance company may not pay you enough to replace it. Some insurers will cover older roofs for their actual cash value rather than a full replacement. Here's how it might work:

Your roof cost you $10,000. It was intended to last 20 years, but after 10 years, it sustains significant damage in a hurricane. If you had roof replacement cost coverage, your insurance company would pay the full cost of a new roof, less your deductible. If, on the other hand, you had actual cash value coverage on your roof, the insurance company would only pay the depreciated value of your current roof. Because the roof is halfway through its expected lifespan, the insurer will deduct half the value, leaving you with a $5,000 payout after deducting your deductible.

How much does dwelling coverage cost?

Dwelling coverage is only one component of a homeowners, condo, or manufactured home insurance policy. According to a 2022 InsuredCircle rate analysis, the average cost of homeowners insurance in the United States is $1,787 per year. This equates to $300,000 in dwelling coverage. Your personal rate will vary depending on where you live and how much coverage you require.

According to the National Association of Insurance Commissioners, the average cost of condo insurance in the United States is $506 per year. (In 2018, the most recent year for which rates were available, data was gathered.) According to American Modern Insurance Group, a prominent mobile home insurer, the cost of manufactured home insurance in the United States typically ranges from $500 to $1,100 per year.

In general, the more dwelling coverage you require, the higher the cost of your policy. You may be able to lower your rate by increasing your deductible, bundling multiple policies, or shopping around for quotes from various companies. Find additional ways to reduce the cost of homeowner's insurance.