Insuring Your Home: What's The Right Amount?

Dwelling insurance is a critical component of a standard homeowners insurance policy that covers the cost of repairing or rebuilding your home in the event of damage caused by a covered peril. It is designed to financially protect the structure of your home, including the foundational walls, roof, and built-in elements such as cabinetry and appliances. The coverage limit of dwelling insurance is determined by how much it would cost to rebuild your home and any attached structures, using current construction methods, materials, and labour costs.

What dwelling insurance covers

Dwelling insurance is one part of your overall home insurance policy. It covers the structure of your home, including the roof, foundation, floors, doors, windows, and walls. It also covers any attached structures, such as garages, porches, and decks, as well as built-in appliances and fixtures. However, it does not include the contents of your home, any unattached structures (like a shed), or the land your home sits on.

Dwelling insurance can help pay for repairs or rebuilding after a fire, windstorm, or other covered disasters. It covers damage from a variety of perils, including:

• Damage caused by the weight of snow, sleet, or ice
• Damage from an aircraft or vehicle
• Water damage caused by appliance overflow or heating/AC malfunction
• Frozen plumbing, heat ducts, sprinkler systems, or appliances

It's important to note that dwelling insurance does not cover flood damage, earthquake damage, neglect/wear and tear, sewer backup, or sump pump damage.

The amount of dwelling coverage you need depends on the replacement cost of your home, which is based on factors like the size of your home, local building costs, and the price of construction materials and labour. It's recommended that you have enough dwelling coverage to completely rebuild your home in case of a total loss.

What dwelling insurance does not cover

Dwelling insurance is an important part of a homeowners insurance policy. It covers the costs of repairing or rebuilding your home in the event of damage or destruction by a covered peril. However, it's important to note that dwelling insurance doesn't cover everything. Here are some things that dwelling insurance typically does not cover:

• Flood damage: Most standard homeowners insurance policies exclude flood damage coverage. If you live in an area prone to flooding, you may need to purchase separate flood insurance.
• Earthquake damage: Damage caused by earthquakes, landslides, and mudslides is generally not covered by homeowners or condo policies. You may need to purchase additional coverage if you live in an area prone to earth movements.
• Neglect and wear and tear: Dwelling insurance is designed to cover sudden accidents, not routine maintenance issues. It won't cover damage caused by neglect or normal wear and tear, such as a leaking roof due to old age.
• Sewer backup and sump pump damage: These types of damage are typically not covered by standard home insurance policies. You may need to add an endorsement to your policy to cover these types of losses.
• Service line damage: Damage to service lines, such as water, gas, sewer, internet cables, and electrical wires, is often excluded from standard homeowners insurance policies. You may need to purchase additional coverage for these types of losses.
• Wildfires: While dwelling insurance typically covers damage caused by wildfires, some insurance companies may exclude this peril for homes in high-risk areas. It's important to carefully review your policy documents to understand your coverage.

How much dwelling coverage do I need?

Dwelling coverage is a critical component of your homeowners insurance policy, designed to financially protect the structure of your home and any attached structures, such as a garage or porch. It covers the cost of repairing or rebuilding your home in the event of damage caused by covered perils, up to your policy limits. When determining how much dwelling coverage you need, the key factor is the cost of rebuilding your home, not the market value or purchase price. Here are some essential things to consider when deciding on the right amount of dwelling coverage for your home.

Understand the Difference Between Market Value and Replacement Value

The amount you paid for your home or its market value is not the same as the cost of rebuilding it. Market value can be influenced by factors such as location or the state of the housing market. On the other hand, the replacement value considers the size of your home, local building costs per square foot, and the price of construction materials and labour. It's important to base your dwelling coverage on the replacement value to ensure you have sufficient coverage in case of a total loss.

Factor in the Size and Features of Your Home

The size of your home will impact the amount of dwelling coverage you need. Bigger homes will likely require more coverage as they typically cost more to rebuild. Additionally, consider any unique features your home may have, such as custom finishes, high-end appliances, or specialised construction techniques. These factors can increase the cost of rebuilding and, therefore, the amount of dwelling coverage you need.

Consider the Age of Your Home

Older homes may require more dwelling coverage due to the potential need for non-standard repairs or the use of outdated building techniques. Additionally, older homes may have unique features or materials that can be difficult or costly to replace.

Understand the Hazards Covered by Dwelling Insurance

Dwelling coverage typically includes protection against a range of hazards, often referred to as "perils." These can include damage caused by severe weather events such as hurricanes, tornadoes, or heavy snow, as well as unexpected events like burst pipes, falling objects, or vehicle collisions. It's important to carefully review your policy to understand what specific hazards are covered and what may be excluded.

Evaluate Your Home's Replacement Cost Regularly

The cost of rebuilding your home can change over time due to factors such as inflation, natural disasters, or fluctuations in the construction industry. Therefore, it's crucial to review and update your dwelling coverage limits periodically. Consider adding endorsements or additional coverage options to account for unexpected increases in rebuilding costs.

Consult with Insurance Professionals

Determining the appropriate amount of dwelling coverage can be complex. It's recommended to consult with licensed insurance agents or brokers who can provide expert guidance based on their knowledge of the industry and your specific situation. They can help you navigate the different types of dwelling coverage, such as replacement cost value, actual cash value, or guaranteed replacement cost policies, and ensure you have the right level of protection for your home.

Types of dwelling coverage

Dwelling coverage is the foundational coverage type of a home insurance policy. It is sometimes referred to as dwelling insurance or Coverage A. It covers the cost of repairing or rebuilding your home and attached structures if they are damaged by a covered peril. This includes garages, decks, porches, plumbing, electrical and HVAC systems, built-in fixtures, and built-in appliances.

There are several types of dwelling coverage, depending on the type of property and the level of coverage required. Here are some of the most common types:

• Homeowners Insurance Dwelling Coverage: This is the most common type of dwelling coverage and is included in virtually all property insurance policies, such as HO-1, HO-2, HO-3, HO-5, and HO-8 policies. It covers the structure of the home and any attached structures.
• Condo Insurance Dwelling Coverage: Condo dwelling coverage can be more complicated as it depends on the coverage provided by the condo association's primary policy. The HO-6 policy generally covers the interior of the condo, personal property, and liability. The amount of dwelling coverage needed depends on what the association's policy covers.
• Rental Property Insurance Dwelling Coverage: This type of coverage is specifically for landlords who rent out their properties. It includes coverage for damage to the structure, personal property used for maintenance or tenant use, liability coverage, and loss of rental income.
• Extended Replacement Cost Coverage: This type of coverage provides additional insurance beyond the dwelling coverage limit stated on the policy. It gives a cushion in case the cost of rebuilding exceeds the original limit.
• Guaranteed Replacement Cost Coverage: This type of coverage is similar to extended replacement cost coverage but without a percentage cap. It pays any cost needed to rebuild the house, making it the most comprehensive form of dwelling coverage.

When choosing a dwelling coverage policy, it is important to review the policy exclusions and consider purchasing additional coverage for hazards such as earthquakes, floods, and sewer backup. It is also crucial to regularly review and update your dwelling coverage amounts to account for changes in construction costs and labour prices.

How to calculate dwelling coverage

To calculate dwelling coverage, you need to determine the replacement cost of your home. This is the amount it would cost to rebuild your home from scratch, using current construction costs in your local area. This is different from the market value of your home, which is influenced by factors such as location, desirability, and the real estate market.

To calculate the replacement cost, you can use the following formula:

Dwelling coverage = Square footage x Current area rebuild cost per square foot

For example, if your home has a square footage of 2,000 and the local rebuild cost per square foot is $100, then your dwelling coverage would be $200,000.

However, this formula only provides a rough estimate. For a more accurate calculation, you can use an online replacement cost calculator, consult a licensed insurance agent, or get a property appraisal from a real estate agent or home construction company.

It's important to ensure that your dwelling coverage is sufficient to cover the cost of rebuilding your home in case of a total loss. Most insurance companies require dwelling coverage to be at least 80% of the home's replacement cost. If your coverage falls below this threshold, your insurer may not pay out your claim in full.

Additionally, consider the following factors that can affect the replacement cost of your home:

• Roof type
• Local building codes (especially for older homes)
• Foundation type
• Outdoor features (e.g., patios, decks)
• Home improvements or additions
• Local construction costs

Frequently asked questions