Your homeowners insurance policy includes dwelling coverage. That’s the amount of money that you will receive to repair or rebuild your house if it gets damaged or destroyed by a covered peril.
What Your Dwelling Coverage Will and Won’t Cover
Dwelling coverage will pay to repair or rebuild your home’s structure, including the foundation, windows, doors, built-in appliances and fixtures, as well as plumbing, HVAC and electrical systems. It will also cover structures that are attached to the house, such as a garage, porch or deck.
Your dwelling coverage won’t pay to rebuild structures that are separate from the house, such as a detached garage or shed. It also won’t pay to replace belongings inside the house that get damaged or destroyed. Those things will fall under other sections of your homeowners insurance policy.
Dwelling Coverage Only Applies to a Covered Peril
If your house gets damaged or destroyed, your dwelling coverage may or may not help you repair or rebuild it. The source of the destruction will determine whether or not you’re covered.
If the damage is caused by a covered peril, such as a storm or a fire, your homeowners insurance will pay for repairs or rebuilding costs. A standard homeowners insurance policy doesn’t cover flood damage. Your policy may have other exclusions.
How to Figure Out If You Have the Right Coverage
Your amount of dwelling coverage should be based on the cost to rebuild your house, not the amount you bought it for, its current market value or your outstanding mortgage balance. One way to estimate the amount of dwelling coverage you need is to contact a few local construction companies, describe your home in terms of square footage and features, and ask them to estimate the cost to rebuild it.
You may want to choose a level of coverage that’s a bit above those estimates because local building codes and costs for construction materials and labor may increase in the future. Getting more coverage than estimated rebuilding costs can help you be confident that you’ll have enough money to rebuild your home if it’s destroyed.
You may be able to choose between replacement cost and actual cash value coverage. Replacement cost coverage will pay the total amount required to rebuild your house if it gets completely destroyed, while a policy that covers actual cash value will take depreciation into account. If you choose an actual cash value policy, you’ll have lower premiums, but you may have to pay a large sum out of pocket if your house is destroyed and has to be rebuilt.
You should review your homeowners insurance policy periodically to make sure that you have enough dwelling coverage. If you have questions, contact your insurance company or agent to discuss your options and how changing your limits could impact your premiums.
