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Dwelling Coverage: What It Is & How Much You Need

If you own a home, you probably want to protect it from unexpected damage or loss. That’s where dwelling coverage comes in. Dwelling coverage is part of your homeowners insurance policy that covers the physical structure of your home and any structures attached to it, such as a garage, deck, or porch. It can help you pay for repairs or rebuilding if your home is damaged by a covered peril, such as fire, wind, hail, or lightning.

Dwelling coverage is an essential component of homeowners insurance that provides protection for the physical structure of your home. Here is a detailed guide to help you understand dwelling coverage in homeowners insurance.

What is Dwelling Coverage?

Standard homeowners insurance is made up of 6 coverages or sections. Dwelling coverage is section A of the home insurance policy that covers the cost of repairing or rebuilding the physical structure of your home if it is damaged or destroyed by a covered peril such as fire, windstorm, hail, or lightning. Perils covered by dwelling coverage depend on the type of homeowners policy you have (we will discuss this in detail below). It is important to note that dwelling coverage does not cover the contents of your home, such as furniture, appliances, or personal belongings.

How Much Dwelling Coverage Do You Need?

One of the most important questions to consider when buying a home insurance policy is: how much dwelling coverage do I need? The answer depends on how much it would cost to rebuild your home with similar materials and quality at current prices. This is called the replacement cost of your home.

To determine the replacement cost of your home, you can use a replacement cost calculator or consult with a licensed insurance agent. These tools can factor in the price of goods and labor in your area, as well as the features and quality of your home.

You should get enough dwelling coverage to cover 100% of the replacement cost of your home. This way, you can avoid being underinsured and having to pay out of pocket for any shortfall. For example, if your home has a replacement cost of $300,000, you should get at least $300,000 in dwelling coverage.

However, you should not confuse the replacement cost with the market value or the mortgage amount of your home. The market value is how much someone would pay to buy your home. The mortgage amount is how much you owe on your home loan. These figures may be higher or lower than the replacement cost, depending on factors such as supply and demand, location and interest rates.

Importance of Dwelling Coverage Limit

The dwelling coverage limit typically decides the default limits for other home insurance coverages by using a percentage of the dwelling limit. For example, if you have a dwelling coverage limit of $300,000, your other coverages may have the following limits by default:

  • Other structures coverage: 10% of dwelling limit, $30,000
  • Personal property coverage: 50% of dwelling limit, $150,000
  • Loss of use coverage: 20% of dwelling limit, $60,000
  • Personal liability coverage: varies depending on your choice, usually between $100,000, $300,000 and $500,000
  • Medical payments coverage: varies depending on your choice, usually between $1,000 and $5,000 per person

These percentages may vary depending on your insurer and policy type. You may also be able to adjust them or buy additional coverage if needed. You should review your policy carefully and make sure you have enough coverage for your needs.

What Does Dwelling Coverage Cover?

Dwelling coverage covers the physical structure of your home and any structures attached to it from a variety of perils. The perils covered by dwelling coverage differ between HO-1, HO-2, HO-3, HO-4, HO-5, HO-6, HO-7, and HO-8 policies depending on whether they are named-peril or open-peril policies. Here is a brief explanation of each policy type and the perils they cover:

  • HO-1: Basic form. This is the most limited and rare type of policy that covers only 10 named perils: fire or lightning, windstorm or hail, explosion, riot or civil commotion, damage caused by aircraft, damage caused by vehicles, smoke, vandalism or malicious mischief, theft, and volcanic eruption.
  • HO-2: Broad form. This is a more common and slightly upgraded type of policy that covers 16 named perils. In addition to the 10 perils covered by HO-1, it also covers falling objects, the weight of ice, snow or sleet, accidental discharge or overflow of water, sudden and accidental tearing apart, cracking, burning or bulging of a built-in appliance (such as water heater, centralized air conditioner, or heating system), freezing of plumbing, heating, air conditioning or automatic fire sprinkler system, sudden and accidental damage from artificially generated electrical current.
  • HO-3: Special form. This is the most common and standard type of policy that covers the dwelling on an open-peril basis and the personal property on a named-peril basis. This means that the dwelling is covered against all perils except those that are expressly excluded in the policy, while the personal property is covered only against the 16 perils covered by HO-2.
  • HO-4: Renters insurance. This is a type of policy that is specifically for renters and covers their personal property on a named-peril basis against the 16 perils covered by HO-2. It also covers liability and additional living expenses if the rented property becomes uninhabitable.
  • HO-5: Comprehensive form. This is the most comprehensive and superior type of policy that covers both the dwelling and the personal property on an open-peril basis. This means that both are covered against all perils except those that are expressly excluded in the policy. This policy type offers the broadest protection and is ideal for homes with valuable belongings.
  • HO-6: Condo insurance. This is a type of policy that is designed for condo owners and dwelling is covered on an open-peril basis against all risks except for the exclusions. The condo association’s master policy usually covers the exterior structure and common areas of the building. The amount of dwelling coverage you need will depend on the type of master policy your condo building has.
  • HO-7: Mobile home insurance. This is a type of policy that is similar to an HO-3 policy but for mobile or manufactured homes. It covers the dwelling on an open-peril basis just like HO-3 and HO-5 policies and the personal property on a named-peril basis against the 16 perils covered by HO-2.
  • HO-8: Older home insurance. This is a special type of policy for older homes that don’t meet insurer standards for other policy forms. It covers the dwelling on a named-peril basis against the 10 perils covered by HO-1 and pays only the actual cash value of the home, not the replacement cost.

What Parts of Your House Are Covered by Dwelling Coverage?

Some of the common structures that dwelling coverage covers are:

  • Walls
  • Roof
  • Plumbing
  • Electrical wiring
  • Heating and air conditioning
  • Chimneys
  • Porches
  • Attached decks
  • Gutters

What Is Not Covered by Dwelling Coverage?

However, dwelling coverage does not cover everything. Some of the common exclusions are:

  • Detached structures (such as a detached garage, shed, pool, or fence)
  • Personal property (such as furniture, clothing, or electronics)
  • Liability (such as injury or damage to others on your property or caused by you)
  • Earthquakes
  • Floods

To get additional coverage for these exclusions, you may need to buy endorsements or separate policies. For example, you may need to buy flood insurance from the National Flood Insurance Program (NFIP) or earthquake insurance from a private insurer.

How Does Dwelling Coverage Work?

Dwelling coverage works by reimbursing you for the cost of repairing or rebuilding your home if it is damaged by a covered peril. However, there are some factors that affect how much you will get paid and how much you will have to pay yourself.

Actual Cash Value vs Replacement Cost Value

One factor is the settlement option. There are two main types of settlement options: actual cash value and replacement cost value.

Actual cash value pays you the depreciated value of your home at the time of loss. This means that it takes into account factors such as age, wear and tear, and obsolescence. For example, if your roof is 10 years old and has a lifespan of 20 years, you will only get paid 50% of its original cost.

Replacement cost value pays you the full cost of replacing your home with similar materials and quality at current prices. This means that it does not take into account depreciation. For example, if your roof is 10 years old and has a lifespan of 20 years, you will get paid 100% of its current cost.

The replacement cost value is usually more expensive than actual cash value, but it also provides more protection. You should check your policy to see which option you have and whether you can change it.

Deductibles

Another factor is the deductible. The deductible is the amount that you have to pay out of pocket before your insurance kicks in. For example, if you have a $1,000 deductible and a $10,000 claim, you will have to pay $1,000 and your insurance will pay $9,000.

The deductible affects your dwelling coverage premium and your out-of-pocket costs. The higher the deductible, the lower the premium, and vice versa. You should choose a deductible that fits your budget and risk tolerance.

Conclusion

Dwelling coverage is a vital part of homeowners insurance that covers the physical structure of your home and attached structures from various perils. It can help you pay for repairs or rebuilding if your home is damaged by fire, wind, hail or other hazards.

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