This article is part two in a series explaining the different coverages homeowners insurance includes. Read part one on contents coverage here.
Contents coverage protects the stuff inside your home, but what about your home itself?
The physical structure of your home - the walls, support beams, foundation, roof and more - falls under the dwelling coverage of a homeowners insurance policy. Should this structure be damaged by a peril listed on your policy, your dwelling coverage would kick in to pay for repairs or to rebuild your home if was completely destroyed.
Dwelling coverage often also includes “attached structures,” such as a garage that is connected to your home or a connected porch or deck. Unattached structures, like a shed or guest house, may not be covered or are covered only up to a certain percentage of your limits, typically 10%. Your insurance agent can help you understand what is and isn’t covered under the dwelling portion of your homeowners policy.
Types of Coverage
Like contents coverage, there are two types of dwelling coverage: replacement cost or actual cash value. Replacement cost will cover the cost to replace your home with materials of like kind and quality. Actual cash value will account for depreciation in the value of items used to construct your home when determining the cost to replace them.
While it may be tempting to go for an actual cash value policy because of the savings on your premium, consider the cost to rebuild and the role your homeowners insurance would play in that. Replacement cost oftentimes provides more complete coverage. Consult your agent to see which coverage is most appropriate for you home.
Depending on where you live, your policy may not cover all of the risks that the structure of your home may face. According to the Insurance Information Institute, “Your homeowners policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disasters listed in your policy. It will not pay for damage caused by a flood, earthquake or routine wear and tear.”
As always, it is important to consult your insurance agent to ensure you fully understand what damages and losses are covered by your policy and what may not be covered. You can explore if supplemental insurance is required with your agent.
As mentioned above, there can be caps on coverage of certain structures on your property. For example, unattached structures, like a detached garage or shed, will likely only be covered up to 10% of your dwelling coverage limits.
If you have expensive features as part of your home’s structure, you may want to check with you agent that a special cap does not apply to their replacement, just in case.
Determining How Much You Need
You’re gonna need an expert for this one! InsuraMatch insurance agent Seth Miller tells us, “Dwelling coverage should be estimated by your agent using a replacement cost calculator and then confirmed by a home inspection.”
Agent Seth continues, “The amount of dwelling coverage needed is determined by the cost of rebuilding your entire home. Your limits should reflect what it would cost to rebuild your home from the ground up if the whole thing were completely destroyed by a covered peril.”
He advises, “Keep in mind that the amount you paid for your home may differ from the cost of rebuilding it.”
Depending on the materials used and the location of your home, you may not need quite as much coverage as the purchase price of your home in order to rebuild it with materials of a similar kind and quality.
The costs of labor and rebuilding in your area can change over time, so it is important to reevaluate how much coverage you need each year.