Dwelling Coverage: What it is and How it Protects Your Home
What is dwelling coverage?
Dwelling coverage is the foundation of your home insurance policy and covers the cost to repair or rebuild the main structure of your home and any attached or built-in structures.
Dwelling coverage is the foundation of all homeowners insurance policies in Canada. Your insurance company will provide enough dwelling coverage to cover 100% of the anticipated cost to rebuild your home after a covered loss.
What does dwelling coverage protect?
Dwelling coverage, also known as Coverage A, protects the main structure of your house. That includes the walls, roof, foundation, and basement, along with attached structures like an attached garage or screened-in porch. Built-in systems (e.g., HVAC, plumbing) and furnishings (e.g., cabinets, countertops) are also included in dwelling coverage.
Dwelling coverage only covers what’s physically attached to or built into your house and won’t pay for repairs on detached structures or movable furniture.
Your dwelling coverage will pay up to the limit listed on your home insurance policy to repair, replace, or rebuild any of the components of your home’s main structure if they’re damaged or destroyed by a covered peril. Any repair costs that exceed your policy limit may be up to you to cover out of pocket.
Whether the damage is covered depends in on whether your coverage is comprehensive, broad, or basic:
- Comprehensive or broad coverage: Covers all causes of damage to your dwelling unless they’re explicitly excluded by your policy. Common exclusions include overland flooding, sewer backup, earthquake, landslide, intentional damage, wear and tear, and neglect.
- Basic coverage: Covers only named causes of damage to your dwelling. Common named perils include fire, lightning, windstorms and hail, theft, vandalism, falling objects, explosion, electrical current, and certain types of water damage.
Do other property insurance policies include dwelling coverage?
Condo insurance and tenant insurance don’t include dwelling coverage since condo owners and renters don’t own their home’s main structure. Instead, these policies focus on other types of coverage, including personal property insurance and liability insurance.
A condo insurance policy includes dwelling-like coverage for the interior and “betterments” of the individual condo unit, such as flooring and wall coverings, but the physical structure of the building is covered by the condo association’s insurance policy.
Tenant or renters insurance only includes contents coverage, additional living expenses coverage, and personal liability insurance, with no dwelling coverage component at all.
Replacement cost vs. actual cash value
Home insurance policies can reimburse you for losses using one of two valuation methods: replacement cost and actual cash value (ACV).
- Replacement cost coverage: Covers the full cost to replace or rebuild your property based on current pricing, with no adjustment for depreciation
- Actual cash value (ACV) coverage: Only cover the actual cash value of your property at the time of loss, without accounting for current rebuild costs
Dwelling coverage almost always pays out on a guaranteed replacement cost basis, and selecting an ACV policy would put you at risk of severely undercutting your ability to rebuild after a major loss. That said, some homeowners in high-risk areas may have the option to choose ACV dwelling coverage to lower costs.
While it’s unusual to have ACV dwelling coverage, this type of loss valuation often applies to your personal belongings.
What dwelling coverage usually does not include
Dwelling coverage does not cover mould, wear and tear, or intentional damage and excludes sewer backup and overland flooding unless you add an endorsement to your policy.
Dwelling coverage only applies to the physical structure of your home, not the personal property inside (including furniture) or detached structures like sheds, fences, and detached garages.
Dwelling coverage also typically excludes certain causes of loss, including:
- Water damage caused by overland flooding or water backup from a sewer system
- Earthquakes, landslides, and other earth movement
- Mould
- Wear and tear
- Intentional damage
- Pests or vermin (e.g., termites, rats)
- War, terrorism, or nuclear disaster
Exclusions vary, so it’s important to read your policy documents carefully to understand what is excluded from your home insurance coverage.
How much dwelling coverage do you need?
You need enough dwelling coverage to equal 100% of the projected cost to rebuild your home. In most cases, home insurance policies include a coinsurance clause that requires you to insure at least 80% of your home’s replacement cost, with penalties if you don’t meet that requirement.
Be aware that your home’s replacement cost is not the same as its market value or the purchase price you paid when you bought the property. Your home’s market value factors in things like curb appeal, school zoning, and location, location, location. Your purchase price also includes the value of the land your home sits on. Replacement cost, on the other hand, only includes the actual cost to rebuild your home’s main structure.
Failing to meet your insurance policy’s coinsurance requirements could drastically reduce the amount you’re owed in the event of a covered loss. Even if you submit a claim for less than the total value of your dwelling coverage, your insurer will impose a coinsurance penalty in proportion to how far below the 80% coinsurance limit you are.
How dwelling coverage limits are calculated
Dwelling coverage limits are calculated based on the estimated cost to rebuild your home’s primary structure.
While there’s no single formula for this calculation, your home’s replacement cost must take into account:
- Square footage
- Number of storeys
- Roofing materials
- Interior and exterior building materials
- Labour costs in your area
You can use an online calculator to estimate the cost per square foot to rebuild or work with an insurance broker to determine the right amount of dwelling insurance. When you request home insurance quotes from PolicyMe, you’ll have the opportunity to speak with a licensed advisor who can help you determine the correct amount of dwelling coverage to buy.
“A lot of people struggle with the reconstruction cost of their house.They think that the market value of the house would be what they’re looking to insure the policy for, but the reconstruction cost of the house could be significantly lower than the market value of the house. An insurance company insures for the reconstruction cost, not the market value.” —Reza Aziz, RIBO-licensed insurance broker
Is dwelling coverage required?
You cannot get home insurance without dwelling coverage in Canada; it is the foundation of all home insurance policies.
Mortgage lenders almost always require home buyers to purchase dwelling coverage in the form of a home insurance policy before finalizing their loan and purchase. If you’ve paid your mortgage off in full, you may not be legally or contractually obligated to maintain dwelling coverage, but it’s still included in all home insurance policies and recommended for every homeowner.
If you rent your home, you can get tenant insurance that does not include dwelling coverage. If you own a condo, you’ll need a condo insurance policy with limited dwelling coverage for the parts of your condo that you have full ownership of (e.g., the interior and furnishings).
How dwelling coverage influences other coverage limits
The limit you set for dwelling coverage also determines effective coverage limits for most other types of coverage on your policy, aside from personal liability coverage (which has its own separate limit).
Some insurers offer a single limit of coverage, which allows you to borrow coverage from one of the categories listed above if you exceed the stated limit for a different category. For example, if you have $500,000 of dwelling coverage and $250,000 of contents coverage, a single limit would allow you to submit a $600,000 claim to rebuild your property.
“Not every insurer offers a single limit on an insurance policy. With a single limit, if one type of coverage—such as your rebuild or contents coverage—falls short during a claim, you may be able to draw from another coverage to make up the difference.” —Adam Segin, RIBO-licensed insurance broker
How dwelling coverage impacts your home insurance premium
Your dwelling coverage limit is the primary factor that determines your home insurance premium, since it makes up the core of your homeowners insurance policy.
The higher your dwelling coverage limit, the more you’ll pay for home insurance.
But the coverage limit on your dwelling coverage isn’t the only factor that influences your premiums. They also depend on:
- The location of your home
- The age of your home
- Your insurance claims history
- Any additional coverage options bundled with your home insurance
FAQ: Dwelling coverage
This article is for general information only and is not insurance or legal advice. Examples and any sample quotes or rate ranges are illustrative and do not constitute an offer or guarantee of coverage, price, or eligibility. Actual coverage, discounts, and premiums depend on your individual circumstances and the insurer provider; if there is any discrepancy, your policy and insurer documentation govern. For advice about your situation, speak with one of our licensed insurance professionals.