What is dwelling coverage?

Homeowners insurance is made up of coverages that offer varying levels of protection for your home and assets. The portion of your policy that covers the structure of the home against covered hazards – commonly referred to as Coverage A or dwelling coverage – may be the most crucial coverage, as your home is arguably your most important asset.

Dwelling coverage protects your home against certain risks, or perils, covered by your policy. If your home is damaged or destroyed by a covered peril and you submit a claim for a loss, your insurer may reimburse you up to the dwelling limit in your policy.

Your dwelling limit is your home’s rebuild cost: how much it costs for a complete rebuild of your home at current construction and labor prices. This figure is typically the highest coverage limit in your policy.

But dwelling coverage isn’t simply for your house; you may also need dwelling coverage if you own a condominium, and you’re definitely going to need dwelling insurance, or a landlord insurance policy, if you rent out your property to others.

What parts of your home are protected by dwelling coverage?

Dwelling coverage insures your home’s foundation, frame, and the roof over your head. But it's also so much more than that. Understanding what is and isn’t covered will help you better understand how much coverage you need and when to file a dwelling claim.

The following parts of your home are typically covered by your policy’s dwelling coverage:

• Foundation
• Frame
• Roof
• Attached garage
• Attached deck
• Screened-in patio
• In-ground pool
• Chimney
• Permanently installed fixtures (countertops, bathroom sink, floors, cabinets)
• Built-in appliances (water heater, furnace)

What isn’t covered

The following parts of your home typically aren’t covered by your policy’s dwelling coverage, but not to worry – they’re probably covered by other parts of your policy, like your other structures or personal property coverage.

• Detached garage
• Shed
• Trampoline
• Treehouse
• Above-ground pool
• Fence

What does dwelling coverage protect you against?

The hazards your home is protected against vary depending on where you live and the type of policy you’re insured by.

HO-2 policy

An HO-2 policy, or “named-peril” policy, only protects your home against perils that are specifically listed in your policy, of which there are generally about 16. These policies are becoming increasingly rare, as most mortgage companies stipulate that you need to have a more comprehensive level of coverage for your home.

HO-3 policy

Which brings us to the most common home insurance policy – HO-3s, or “open-peril” or “all-risk” policies – which protects your home against every peril except the ones spelled out in your policy. While most of the risks you’ll need your home insured against are already covered in an HO-2, HO-3s are broader and allow for more “wiggle room” when you submit a claim.

Your dwelling coverage typically insures your home against:

• Fire
• Weight of ice or snow
• Hail or windstorms
• Tornadoes
• Hurricane winds
• Lightning
• Falling trees (except if caused by a pest infestation)
• Theft and vandalism
• Damage caused by a car or airplane
• Sudden and immediate water damage

And your dwelling coverage typically doesn’t insure your home against:

• Earthquakes
• Flooding
• War
• Mudslides
• Sinkholes
• Wear and tear and neglect
• Government action
• Pests
• Slowly accumulated water damage

But you may be able to add additional insurance or coverages to your policy to cover your home against perils excluded by your dwelling coverage.

How much dwelling coverage do I need?

As we touched on earlier, your home’s dwelling coverage is determined by the amount it’d cost for a full rebuild at current construction and labor prices. Most HO-2 and HO-3s are replacement cost value (RCV) dwelling policies, meaning your dwelling limit reflects the full replacement amount without depreciation. Check your policy’s declarations page to see exactly how you’re reimbursed for claims.

While it’s unlikely that your home’s reimbursement terms are anything less than RCV, you’ll want to be sure your claim check isn’t a depreciated amount.

You may also want to consider upgrading your settlement terms so that they go beyond simply the home’s replacement value. Construction and labor costs can fluctuate, especially in the wake of a natural disaster. If certain regions are met with an influx of claims and there’s a high demand for materials and labors, rebuild costs may skyrocket and your level of dwelling coverage may not be sufficient.

As a solution, most insurers offer an inflation guard endorsement or extended replacement cost (ERC) coverage as an endorsement to your dwelling insurance. ERC is generally offered in amounts of 25% and 50% your dwelling limit, meaning if rebuild costs are higher than your dwelling liability limit, your limit will be extended accordingly. Some insurers may also offer guaranteed replacement cost (GRC) coverage for a significantly higher premium, meaning even if your home’s rebuild cost quadruples, you’ll still be reimbursed for a full rebuild.

To figure out your dwelling limit, you have a few options: if you’ve lived in the home for a while and you’re simply switching carriers, your new insurer will generally use your prior policy as a reference point. If this is your first rodeo or you moved into a new house, you can hire an appraiser to calculate your dwelling coverage for you, or use a replacement cost calculator offered by several insurers.

For a rough replacement cost estimation, try this out:

• Research the average cost-per-square-foot that home builders charge in your area
• Multiply your home’s square footage by the average rate
• Calculate the cost of cabinetry, flooring, built-in appliances, roofing, and windows
• Add it all together

Types of dwelling coverage

Dwelling coverage isn’t simply for your home. Depending on what kind of property you own, you may need to buy a different kind of dwelling insurance.

Dwelling insurance for your condo

If you own a condominium and belong to a homeowners association (HOA), there’s a good chance your HOA’s master policy covers the building that your condo occupies, but not the condo itself.

For protection for the structure of your condo – cabinets, flooring, walls, and your bathroom tub – as well as protection for your personal property and liability, you’ll need to buy a condo insurance policy, also known as an HO-6.

Dwelling coverage for your rental property

If you rent your property out to others, you’re not responsible for what happens to their stuff, but you are responsible for the structure of the apartment building and individual units you’re renting out. Most insurers offer special coverage for landlords, also known as DP3 coverage, dwelling fire insurance, and landlord insurance to insure your property against potential hazards.