Dwelling insurance: What is it and how much do I need?

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If you’re a homeowner, you probably have dwelling insurance. It’s part of most homeowners insurance policies—some would say the most important part. Dwelling insurance is the part of the policy that helps you pay to repair or rebuild your home (along with structures attached to your home, like a garage or porch) in the event of a covered hazard.

What does dwelling insurance cover?

Your HO-3 policy (the most common type of homeowners policy) has four basic components:

  • Coverage to repair or rebuild your house
  • Coverage for your personal belongings
  • Liability protection if someone is injured or their belongings damaged on your property
  • Additional living expenses to cover your costs of living in a hotel while your home is being repaired.

Dwelling insurance is the first of these four components. It’s also referred to as “Coverage A.” In general, it will cover damage from any of these causes:

  • Fire and smoke
  • Lightning strikes
  • Wind damage
  • Hail
  • Explosions
  • Vandalism
  • Theft
  • Damage caused by the weight of snow, sleet or ice
  • Falling objects
  • Damage from an aircraft or auto
  • Volcanic eruption
  • Water damage caused by appliance overflow or heating/AC malfunction
  • Frozen plumbing/heat ducts/sprinkler system/appliance

Check your policy to ensure that it covers these common disasters.

What part of the house does dwelling insurance cover?

Dwelling insurance covers damage to your home, including the foundation, frame, walls and roof. It covers cabinets, appliances like your furnace and water heater and may also cover other structures that touch the house, such as an attached garage, deck or porch.

Structures that are not connected to your house, however, like a detached garage, driveway, fencing, garden shed, gazebo or in-ground swimming pool are not likely to be included in your dwelling coverage. These structures may require an amendment to your policy to be adequately covered.

Other structures coverage can help you to cover costs if these structures are damaged by a covered peril. Generally this coverage is 10% of the coverage on the dwelling itself. For example, if your dwelling coverage is for $250,000, your other structures coverage will be $25,000.

Although a detached structure like a garage may not be covered in your dwelling insurance, items within that garage would be covered by your personal property homeowners insurance, which covers your belongings no matter where they are.

How much dwelling coverage do I need?

It may cost more than you realize to rebuild your home if it is destroyed or damaged. Your home’s assessed value is based on what someone might pay for your house on the market, but that number isn’t the same as replacement cost coverage (RCC). RCC is the actual costs you would incur to repair or rebuild your house with materials that are similar in kind and quality without deducting for depreciation.

To determine the RCC for your home, you’ll need to do some math: research what builders are charging in your area per square foot, and multiply that by the number of square feet in your house. Then consider details in your home: does it have hardwood floors? Gumwood trim? Antique light fixtures? A newly-renovated kitchen? All these add to the RCC value. Also add in the amount to replace your roof and the value of your exterior finish.

Your final number may be more than the cash value or assessed value of your home, but it’s the number you should use when you talk to your agent about dwelling coverage. Your goal is to be able to replace your home with a structure that is similar in size and design, or repair it in a way that is consistent with the style of the rest of the house.

Another reason to be generous with your dwelling coverage limits is that after a catastrophe that impacts multiple homes in an area (such as a hurricane), it is likely that contractors will be stretched thin. The cost per square foot to rebuild your house may be higher than it would be otherwise. It can pay to sign up for as much dwelling coverage as you can afford.

Perils not covered by dwelling insurance

Not all disasters are covered by dwelling insurance. For these perils, supplementary insurance may be available if you are concerned about the risks.

Flooding

Flood damage is not included in most homeowners insurance policies. If you live in a flood plain or near a body of water that is prone to overflow, you may want to consider flood insurance coverage. This coverage is available from the National Flood Insurance Program (NFIP).

Flood insurance may be a good bet for you even if you don’t live in a flood-prone area. The Insurance Information Institute reports that 20% of flood claims come from those living in low to moderate flood risk areas. With changing weather patterns, areas of our country that have never flooded in the past are more likely to do so now.

Earthquakes

The top states for earthquakes in the U.S. are Alaska and California, followed by Nevada, Hawaii and Washington. If you live in one of these areas or another part of the country that is liable to damage from earth tremors, you may want to consider adding earthquake coverage to your policy. An earthquake claim is rarely a low-cost item. A quake can seriously damage your foundation, and even a minor tremor may cause cracks in walls and extensive property damage. Your HO-3 policy will cover fire damage following an earthquake, but structural damage is not covered.

Another consideration: if you live in an area where there is significant oil drilling, such as parts of Oklahoma, seismic activity may be common and make the need for earthquake insurance more urgent.

Maintenance damage

A home is a complex structure with different systems—plumbing, heating, electrical—all working together to keep you comfortable and safe. It’s your job to keep those systems running properly. You need to be alert to glitches in the systems, which could be anything from the tell-tale signs of termite infestation to a flooded basement. If you fail to do so, and your lack of regular maintenance results in damage, your dwelling insurance will not cover it. This includes hard-to-monitor fails like mold infestation.

Sewer issues

This one is tricky. If a clogged pipe that originates in your house—let’s say the pipe below a basement sink—floods your basement, your dwelling insurance should cover it. But if the clog originated outside of your house, in the lateral pipe that runs from your town’s sewer main into your house or from somewhere else in the system, then it is not covered under basic dwelling insurance. This clog could cost you thousands if you have not purchased a separate endorsement to your policy for sewer lines.

That willow tree in the front yard with the invasive roots or the summer storm that backs up the sewage system into the street requires additional insurance coverage on top of your dwelling insurance. Your agent can give you more information and a price for that coverage.

What is the difference between dwelling insurance and hazard insurance?

In the insurance world, a hazard is anything that increases the probability of a loss. Fire, tornadoes, snowstorms—all these are hazards. Hazard insurance is is a term used to describe your coverage for hazards, which are described in your policy. Named hazards are those that are included in the base policy. Some hazards, as we’ve described above, are not covered. Insurers also sometimes refer to hazards as perils.

Hazard insurance is a general term that may be used to mean homeowners insurance. It refers to the coverage for specific risks that you protect yourself against by purchasing your policy. Hazard insurance includes dwelling coverage, other structures coverage and personal property coverage.

Do I need dwelling insurance if I have a condo or apartment?

Probably not. Condo owners can get a specific type of insurance, called an HO-6 policy, which covers their property and liability needs. Their association’s policy should cover the structure itself.

Apartments dwellers should explore renters insurance, which covers their personal property. The building itself will be covered by the landlord’s policy. Finding the best renter’s insurance isn’t difficult, as many of the larger insurance companies, such as Erie Insurance and State Farm, offer it.