What is dwelling coverage & how much do you need?

What is dwelling coverage?

Dwelling coverage is the part of your homeowners insurance policy that protects the physical structure of your home from covered hazards like burning to the ground, getting destroyed by a hurricane, or being crushed by a fallen tree. It'll pay to rebuild your home, making it one of the most important and expensive parts of your policy.

What parts of my home are protected by dwelling insurance?

Dwelling coverage protects the following parts of your home:

• Foundation

• Frame, walls, flooring, and windows

• Roof

• Fireplace and chimney

• Plumbing, electrical, and HVAC systems

• Built-in fixtures like sinks, tubs, showers, and cabinets

• Built-in appliances like your furnace and water heater

• Attached garage

• Porch and deck

• In-ground swimming pool

Personal belongings inside your home and any structures that aren’t directly attached to your home are covered by other sections of your homeowners insurance policy.

What is covered by dwelling insurance?

Dwelling insurance covers your home and built-in systems from the following perils (aka hazards), according to the Insurance Information Institute: [1]

• Fire and smoke

• Lightning strikes

• Wind and hail

• Weight of ice, snow, and sleet

• Water damage caused by burst pipes or appliance overflow 

• Frozen plumbing, heating, and air conditioning systems

• Vandalism and theft

• Falling objects

• Explosions

• Riots

• Damage caused by an aircraft or vehicle

• Volcanic eruptions

If the structure of your home is damaged by any of these perils, you can file a claim with your insurance company to be reimbursed for the damage — up to the dwelling coverage limit in your policy.

What is not covered by dwelling insurance?

Dwelling insurance doesn’t cover your home against all perils. Here are a few policy exclusions not covered by dwelling insurance: 

• Flooding

• Earthquakes, landslides, and mudslides

• Termites, rats, bed bugs, and other infestations 

• Mold

• Water backup from your sewer or sump pump

• Service lines

• Sinkholes

• Regular wear and tear

• Maintenance issues

• Intentional damage caused by a member of your home

• Homes vacant longer than 30 to 60 days

Consider purchasing coverage add-ons to ensure you're fully protected

Many home insurance companies offer coverage add-ons — also called endorsements — that you can add on to your policy for an additional annual fee to protect you from some of these exclusions listed above. A few you might want to seriously consider include flood insurance, earthquake insurance, and water backup coverage.

Here's why.

Over 1 in 4 flood insurance claims are filed by people who don't live in high-risk flood zones, according to FEMA. [2] And the National Flood Services estimates that just one inch of flood water can cause $25,000 in damage. [3]

Meanwhile, as many as half of all Americans are exposed to a potentially dangerous earthquake, and that number is likely higher in earthquake-prone states like California, Nevada, and Oregon, according to data from the U.S. Geological Survey. [4]

How much does dwelling coverage cost?

Dwelling coverage makes up the bulk of your home insurance policy since it covers the largest structure — your home — making it one of the most expensive coverages. In general, the more dwelling coverage you have, the higher your home insurance rates will be. 

Let’s take a look at the average cost of homeowners insurance in the U.S. based on different dwelling coverage limits, according to our analysis of 2022 rates from across the country.

How much dwelling coverage do I need?

How much dwelling coverage you need depends on the replacement cost of your home — or how much it would cost to rebuild it at today’s construction and labor prices. 

It should not be based on your home’s market value, which is how much buyers are willing to pay for it on the real estate market.

Let’s take a look at an example.

Say there was a bidding war on the home you just purchased due to the hot real estate market. While the rebuild cost of the home is only $300,000 — you ended up paying $450,000 to beat out other potential buyers.

You would still only need $300,000 in dwelling coverage to fully protect your home — even though you paid $150,000 more when you bought it. 

What factors affect the replacement cost of my home?

The replacement cost of your home depends on multiple factors, including:

• The cost of construction and labor in your area

• Your home’s square footage

• Age of your home

• Number of rooms

• Architectural style

• Number of stories

• Recent renovations

• Special features in your home

You can use our replacement cost estimator to help you calculate how much coverage you need. But we’ll also show you a quick way to guesstimate it below.

How to calculate dwelling coverage

A quick way to calculate dwelling coverage for your home is to multiply the square footage of your home by the average cost per square foot to build in your area.

Because construction and labor costs can fluctuate — especially in today’s economy — you might want to purchase one of the following extended dwelling coverages to ensure you’re fully protected:

• Extended replacement cost coverage increases your dwelling coverage limits by 20% to 50% to offset a potential hike in construction or labor prices.

• Guaranteed replacement cost coverage pays out whatever it costs to rebuild your home — regardless of your coverage limits — making it the most expensive type of dwelling coverage.

How do claims work with dwelling coverage?

If the structure of your home is damaged by a covered event, you can file a dwelling coverage claim through your home insurance company to get reimbursed for the damages. 

Most insurance companies allow you to file a claim online or over the phone. You’ll typically need to provide documentation of the damage, and then your insurer will send an adjuster to your home to assess the situation and calculate a settlement amount.

Your claim payout amount will be subject to your home insurance deductible, which is the out-of-pocket amount you’re responsible for paying before insurance kicks in to cover the rest. Most deductibles range anywhere from $500 to $2,000. 

Is dwelling coverage required?

While dwelling coverage is not required by law, most mortgage lenders require you to purchase homeowners insurance (including dwelling coverage) before they’ll extend you a loan. This is because they have a financial stake in your property until you fully pay off your mortgage, so they want to ensure their investment is fully protected.

Types of dwelling coverage

In this article, we focused on dwelling coverage for HO-3 home insurance policies — the most common type of home insurance that the majority of Americans have. But there are a few key differences in how dwelling coverage works for other types of policies.