Dwelling Coverage: What it is and How it Protects Your Home
TL;DR 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. 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 furniture (e.g., cabinets, countertops) are also included in dwelling coverage.
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, wind and hail, theft, explosion, electrical current, and certain types of water damage.
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.
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 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?
The amount of dwelling coverage on your homeowners insurance policy should 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 set 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.
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).
- Other structures coverage: Usually around 10% of your dwelling coverage limit
- Contents coverage: Usually around 50% of your dwelling coverage limit
- Additional living expenses/loss of use coverage: Usually around 20% of your dwelling coverage limit
How dwelling coverage impacts your home insurance premium
Your dwelling coverage limit is a key factor in home insurance pricing, since it determines the maximum amount your insurance company could pay on a variety of home insurance claims.
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.