Dwelling coverage is a part of your homeowners policy that will pay for the repair or the rebuilding of your home in the event of damage caused by a covered event or hazard.
Here is a look at what dwelling insurance covers and doesn’t cover, the types of damage and hazards that are covered and the impact of other factors on your coverage.
What is covered under dwelling insurance?
Each policy is different, but dwelling insurance typically covers damage from the following sources:
- Fire and smoke damage
- An explosion
- Damage from the weight of snow, sleet and ice on the structure
- Damage from falling objects
- Damage from an aircraft
- Damage from a motor vehicle
- Power surges
- Water damage from burst pipes or an appliance overflow
- Frozen plumbing, heating, air conditioning or automatic fire sprinkler systems
- Volcanic eruptions
Clearly there are a wide range of natural and man made perils and hazards that are typically covered. It is a good idea to review your own policy to determine which types of hazards might be covered or excluded.
What is not covered by dwelling insurance?
Just as important as what is covered by the dwelling coverage on your policy, it's perhaps more important to understand what is not covered. Some perils typically excluded from coverage are damage from:
- Sewer backups
- Normal wear and tear on the dwelling
- Damage caused by intentional actions of the occupant or others
- War or insurrection
If you live in an area that is plagued by floods, hurricanes, earthquakes or other recurring acts of nature that may not be covered, you should consider obtaining special coverage against these perils. In fact your lender may require it.
How much dwelling coverage do I need?
You will want to have a sufficient amount of dwelling coverage to cover the full cost of rebuilding your home in the event it is totally destroyed by a covered peril. This includes the cost of labor, materials and any other services needed to completely rebuild your dwelling at the current prevailing rates in your area.
Your replacement cost consists of several factors including:
- The cost of materials and labor in your area
- The dwelling’s square footage
- The number of rooms
- The home’s architectural style and the number of stories
- The age of the home
The cost of repairing or replacing the dwelling can fluctuate based on a number of factors. This can be especially true if there has been a natural disaster that has hit an entire area. Labor and materials may be in scarce supply, and the price of both may be increased as a result.
For scenarios such as a potential widespread natural disaster or other circumstances that could drive up repair or replacement costs, it might make sense to consider an extended replacement cost option for your dwelling coverage if your insurer offers one.
Extended replacement cost essentially provides a level of inflation protection against rising repair or replacement costs for your dwelling. If the costs to repair or replace the dwelling exceed the regular policy limits, the extended replacement cost option kicks in and covers the overage up to the option’s limits which are generally 25% - 50% over the regular policy limits.
How much dwelling coverage do I need for a condo?
The amount of dwelling coverage that you might need for your condo unit will depend upon several factors.
The first step is to review your condo homeowner’s association master policy to determine what is covered there. Generally this policy will cover the actual building, common areas within the building, the land around the building and usually some level of structural coverage for each individual condo unit.
You will want to check your homeowners association master policy to see if it offers bare walls coverage, single entity coverage or all-in coverage. This will dictate how much, if any, dwelling coverage you will need on your individual condo unit.
Bare walls coverage
Bare walls coverage covers the structure of the condo building and damage to any common areas within the building. This type of coverage also covers minimal structure damage to portions of the individual condo units. This generally includes drywall, insulation, framing within the walls, wiring and plumbing. This type of coverage provides a minimal amount, if any, coverage of the interior of your unit. You will need sufficient dwelling coverage to repair or replace the entire inner structure of your unit.
Single entity coverage
This type of coverage is sometimes referred to as “walls in” or “studs in” coverage. Single entity coverage includes everything included in bare walls coverage. In addition, single entity coverage extends to the outside of the walls within the unit, the top flooring, cabinets, bathroom fixtures plus any portion of the unit that is unaltered as of the unit owner’s move in date. If your homeowners association’s master policy has single entity coverage, you will need dwelling coverage on any alterations that have been made to the unit.
As the name implies, this is the most comprehensive of the three types of coverage that a homeowners association master policy can offer. All-in coverage will generally cover the entire interior of your unit including any improvements over and above the original condition of the unit. If your homeowner’s association’s master policy offers all-in coverage, you likely do not need additional dwelling coverage on your condo unit.
How to calculate dwelling coverage
Unless you are an expert in the building industry, you will probably need to make some estimates to figure the replacement cost of your dwelling. This might include contacting local builders to get an estimate of cost to repair or replace a dwelling like yours. They may give you an estimate in the form of a cost per square foot. You can then multiply this by the size of your dwelling.
You will also want to be aware of any local building code issues that might impact the cost of repairing or rebuilding your residence. If your home is older or if it is a custom home there may be features of the home that are difficult and expensive to repair or replace which can drive up the overall cost.
Is dwelling coverage the same as replacement cost?
Dwelling coverage is not necessarily replacement cost coverage. Dwelling coverage will pay to rebuild or replace your dwelling up to the policy limits. Some companies and policies might offer full replacement cost coverage as an option, but this is usually not the default option. You will need to specify this level of coverage and you will pay extra for it.
Is dwelling coverage required?
If you are taking out a mortgage on your dwelling you will be required to purchase homeowners insurance. Dwelling coverage is the key component of a homeowner’s policy.
What is the difference between dwelling insurance and homeowners insurance?
Dwelling insurance is a part of a homeowners policy. Beyond dwelling coverage, homeowners policies include coverage for your personal belongings, personal liability coverage and additional living expenses if you are forced from your home by damage from a covered peril.