What Is Dwelling Insurance? | US News – U.S. News & World Report
Understanding your home insurance deductible can help you decide how best to protect what may be the most expensive purchase you ever make. Unfortunately, it’s not always easy to understand your policy’s fine print. Keep reading to learn how a homeowners deductible works, how it affects your premium, and how much of a deductible you may need.
What is a Dwelling?
Insurers typically define a dwelling as a physical structure that is used primarily as a private residence, such as a house, apartment, condominium, duplex, or townhouse. Attached structures, such as a garage, are considered part of a dwelling. External structures, like a backyard shed, are not.
What is Dwelling Insurance?
Dwelling insurance, also known as Coverage A within a homeowners policy, covers the physical structure of your home from specific types of hazards and perils that lead to repairs or rebuilding. It does not apply to items inside your home or to freestanding buildings on your property.
When buying a homeowners policy, you can choose the coverage limit and deductible for the dwelling insurance. Typical coverage limits range from $100,000 to $500,000, while deductibles may be anywhere from $500 to $2,000, depending on the policy and insurer. Insurers reimburse claims based on a fixed dollar amount, rather than a percentage.
The Best Homeowners Insurance Companies of 2022
Any rates listed are for illustrative purposes only. You should contact the insurance company or insurance agent directly for applicable quotes.
What Does Dwelling Insurance Cover?
Homeowners can expect dwelling insurance to cover their main structures from a variety of approved hazards and perils, including the following:
Fire and smoke damage, whether caused by lightning strikes, electrical malfunctions, or a dishcloth that got too close to the stove
Windstorms or hail, which can damage your roof, knock trees onto your house, break windows, and ruin siding
Snow, ice, and sleet, leading to frozen pipes or roof damage
Water damage, such as a ceiling or walls that are ruined by leaking pipes
Explosions, which can occur when aerosol cans malfunction or a gas grill combusts
Motor vehicles that run into dwellings, causing significant damage to a garage door, for instance
Falling objects, such as asteroids, satellites, airplane parts, and meteors (no matter how unlikely this is to occur)
Vandalism, which can involve intentionally destroying property
What Doesn’t Dwelling Insurance Cover?
Dwelling insurance is just one type of coverage provided in your homeowners insurance policy. Although it protects the physical structure of your home from many perils, there are some things that are not included in dwelling coverage.
Flooding can damage both your possessions and living structure, but dwelling insurance does not cover associated costs. This is covered by a separate flood insurance policy. Depending on where you live, you may be required to buy this kind of insurance.
Earthquakes can cause significant structural damage. Earthquake insurance is not required, even in regions that are prone to such activity. However, it will cover damage in the event of a quake that dwelling insurance won’t.
Improperly maintained dwellings can deteriorate due to lack of normal maintenance, such as not replacing a leaky roof or failing to treat pest infestations.
Sewer backups, sump pump issues, and other draining problems usually require a separate, optional policy that covers specific water systems.
How Much Dwelling Insurance Do I Need?
Dwelling insurance coverage usually ranges from $100,000 to $500,000, depending on the policy, while deductibles typically range from $500 to $2,000. Before you decide on how much dwelling coverage to include in your homeowners policy, experts say you should estimate the cost of rebuilding your home in today’s market. You may want to contact a real estate agent or property inspector to help you with this. When selecting a deductible, pick an amount that you could comfortably pay out-of-pocket in the event of a claim.
How Does Dwelling Insurance Reimbursement Work?
Homeowners insurance policy reimbursements are based on how much it would cost to replace or rebuild. Depending on the type of claim, insurers may or may not factor in depreciation and normal wear and tear when issuing a payout.
What is Replacement Cost Value (RCV)?
Dwelling insurance coverage is typically reimbursed on a replacement cost value (RCV) basis, which means you’ll receive up to a certain dollar amount in the event of a covered peril or hazard. If your dwelling insurance has a $300,000 coverage limit, that’s the maximum amount you can receive (minus your deductible) to repair or rebuild your home.
If the final repair bill is higher than what your dwelling insurance will cover, you will have to pay the difference out of pocket. To protect yourself from such an occurrence, you may want to consider buying additional dwelling insurance. This can come in one of two forms:
Extended replacement cost policies build in a cushion to help with unexpected replacement cost overruns of up to 25% or more over your dwelling coverage limit, depending on your insurer and policy.
Guaranteed replacement cost policies cover the final cost of replacing or rebuilding your house, no matter the amount, although some insurers may limit this to a set percentage above your dwelling coverage amount.
What is Actual Cash Value (ACV)?
In the event that a covered hazard or peril destroys part or all of your dwelling, the belongings inside the home – your personal property – may be reimbursed on a replacement cost or actual cash value basis. Actual cash value (ACV) claim payments take depreciation and normal wear and tear into account, meaning you’ll receive fair market value for your belongings. In other words, the bedroom set you bought five years ago for $2,000 may only be valued at $1,000 if it were to be destroyed in a house fire.
Bear in mind that your dwelling coverage amount influences the other coverage amounts that your homeowners policy has. Protection for personal property, loss of use, and other structures typically is calculated as a percentage of your dwelling coverage limit. For instance, if your dwelling insurance has a $400,000 limit and your personal property is set at 50% of that amount, your coverage limits would be $200,000.
Do Condo Owners Need Dwelling Insurance?
When you live in a condo or co-op unit, you are only responsible for insuring the square footage you own. The master insurance policy for the entire building will affect how much coverage you need for your unit.
Condos typically use an HO-6 policy, which functions similarly to a standard homeowners policy. It often includes dwelling, personal property, personal liability, loss assessment, and additional living expenses coverage but is limited to the part of the property you own. If a windstorm breaks one of your windows, your HO-6 dwelling insurance will pay the cost of repairs because a covered loss caused the damage. As with standard dwelling insurance, HO-6 policies do have their limits. Flooding, earthquakes, infestations, and other perils are not covered.
Learn More
For more information on Homeowners Insurance please visit our other guides:
Related 360 Reviews
For more information on other types of insurance, see the following guides:
Why You Can Trust Us
At U.S. News & World Report, we rank the Best Hospitals, Best Colleges, and Best Cars to guide readers through some of life’s most complicated decisions. Our 360 Reviews team draws on this same unbiased approach to rate insurance companies and agencies. The team doesn’t keep samples, gifts, or loans of products or services we review. In addition, we maintain a separate business team that has no influence over our methodology or recommendations.
U.S. News 360 Reviews takes an unbiased approach to our recommendations. When you use our links to buy products, we may earn a commission but that in no way affects our editorial independence.
