Dwelling coverage and homeowners insurance are a must if you want to be able to repair or rebuild your home if it is damaged. Dwelling insurance provides many other coverages as well.
What Is Dwelling Insurance Coverage?
A standard homeowners insurance policy that protects your home is like a package with several coverages. Dwelling insurance coverage is the central part of your policy as it covers the existing home, and is complemented by some other essential limits.
The positive thing about packaging coverages together is that it saves money while providing a level of protection you may not get if you had to buy each coverage separately. While the dwelling coverage protects your home, here are other coverage parts that protect your belongings, detached structures, and even liability.
What Does Dwelling Insurance Cover?
Typically, you have a mortgage when you own a home, and the bank requires you to have a homeowners insurance policy. Even if you have no requirement, it is crucial to carry one anyway if your home is damaged and you cannot live in it for some time.
Dwelling insurance, also called Coverage A, will pay to rebuild or repair the actual structure of your home up to the limit on the policy. A standard homeowners policy will insure against fire, wind, hail, lightning, explosions, smoke damage, theft, vandalism, falling objects, damage from the weight of snow, sleet, or ice, and some others. Be sure to read your policy thoroughly.
For example, if your home is insured for $400,000 and the unfortunate event of a fire happens, you will get $400,000 to replace your home if it is a total loss. Usually, carriers will pay replacement costs, but keep in mind that sometimes insurance companies pay at actual cash value, which accounts for depreciation.
What Doesn’t Dwelling Insurance Cover?
As with every insurance policy, there are some exclusions to be aware of. Flood is often excluded from a homeowner’s insurance policy, though if you are in a flood zone, you can purchase a flood policy from the National Flood Insurance Program or NFIP. Flood insurance is considered a named-peril policy since it only provides coverage for one peril.
Earthquake is also excluded from dwelling coverage but can be added for an additional premium. If you live in a state where earthquakes are likely to occur, it is something to consider.
Water backup from sewer and drain is usually excluded but is not expensive to add to your policy. Water backup usually happens when it rains heavily, and a sump pump fails or cannot work quickly enough.
How Does Dwelling Insurance Work?
Homeowners insurance has several coverage parts that will protect various items. While you already know that Dwelling coverage, or Coverage A, provides repair or replacement of your home up to the limit, there are other essential coverages within the policy.
- Coverage B, or Other Structures: Other structures will provide a limit for structures that are not attached to the dwelling. Some examples include detached garages and sheds.
- Coverage C, or Personal Property Protection: Imagine if you could pick your home up and turn it upside down – anything that falls out is considered Personal Property and covered here. Anything of value, like art or jewelry, should be scheduled separately.
- Coverage D, or Additional Living Expense: If a covered peril damages your home and you cannot live in it while being repaired or replaced, additional living expenses will help. It can pay for things like rent, food, and even storage.
- Coverage E, or Liability Protection: You and the residents of your household could unintentionally cause bodily harm to someone or property damage to others’ property. Liability protection would step in and pay for the defense and legal fees incurred, again if it was unintentional.
- Coverage F, or Medical Payments: Someone could become injured on your property and need medical attention. For example, if your niece is visiting and trips and breaks their arm, your medical payments could help pay for her medical expenses since the injury happened in your home.
Keep in mind that dwelling coverage will include any attached garage or fence. Also, the insurance company will automatically set the limits for the coverages outlined above as a percentage of the dwelling limit. If you need to report a claim for any of the above coverages, call your insurance company as soon as possible, and be sure to keep documentation if possible.
Dwelling Insurance for Condos and Rental Property Owners
If you own a condo, the dwelling coverage works a bit differently. A standard condo insurance policy will cover anything inside the home, while the condo association will have dwelling coverage for the actual building or structure. The association will have either:
- Walls-In: This condo policy pays for items from the exterior wall in, including items attached to the condo like lighting, appliances, and even plumbing.
- Bare Walls: Coverage is provided for common elements only. If your association carries this type of policy, ensure that your dwelling coverage is enough to cover plumbing, lighting, and appliances.
A rental property owner will also have a different type of policy than a standard homeowner’s. The dwelling policy will have similar coverages to homeowners but not usually the personal property aspect. You will not have your personal belongings in a home that is not being lived in by you.
How Much Dwelling Coverage Do You Need?
You should always discuss the dwelling coverage limit with your agent, but standard practice is to use a limit that will fully replace your home. This can be difficult as construction materials and labor pricing constantly change. Because this can change over time, it is critical to review your policy annually to ensure the limit is sufficient.
Don’t forget to consider any upgrades you do, costs to tear down and remove debris, and the fact that the other coverage parts of your policy are directly related to the dwelling coverage amount. Consider adding one of these endorsements:
- Guaranteed replacement cost: Pays for replacing your home, regardless of limit and cost. Not all companies offer this, but it is the broadest option if they do.
- Extended replacement cost: The insurance company will pay a specified percentage above your dwelling limit, usually between 25 and 50 percent. This helps in times of inflation.