What is Dwelling Coverage?

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Contributor, Benzinga
December 14, 2021

Almost all insurance policies that provide coverage for a building or structure include dwelling coverage. Dwelling coverage is usually based on the estimated cost to replace the structure or anything attached to it in the event of a covered loss.

Learn more about dwelling coverage and review top insurance providers with Benzinga’s guide.

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Key Points

  • Dwelling coverage is 1 part of a more extensive insurance policy like homeowners, landlord’s or commercial property insurance.
  • Coverage for the dwelling includes the structure itself and anything attached or built into it.
  • Policies will typically value losses on the dwelling either on a replacement cost or actual cash value basis. Actual cash value means depreciation is taken into consideration and the claim payout will be lower.
  • A building’s market value should not be used for the dwelling coverage.
  • A replacement cost estimator considers the specifics of the building to determine the estimated cost to rebuild the structure in a loss.
  • The replacement cost should typically be the dwelling coverage amount on an insurance policy.
  • Most companies require customers to insure the building to at least 80% of a structure’s replacement cost. Otherwise, a penalty is applied.

What is Dwelling Coverage?

Dwelling coverage is the amount of coverage afforded to a dwelling or structure. It also covers anything attached to or built into the structure, which can include appliances like water heaters or furnaces. This coverage is often found in most policies that cover buildings, such as a homeowners policy or a commercial property policy. It is typically based on what the insurance company estimates the replacement cost of the structure to be.

Types of Insurance With Dwelling Coverage

Several types of insurance policies offer dwelling coverage. These policies are outlined below.

Homeowners Insurance

On a homeowners insurance policy, dwelling coverage is determined by considering the specifics of the home and putting them into a replacement cost estimator. The estimator will look at the square footage of the home, as well as the wall, flooring and ceiling materials and special features like bay windows.

All this information will produce an estimated replacement cost of the home, and this is the amount that is typically used for the dwelling coverage. If there is a covered loss, the dwelling coverage is the amount that the insurers will pull from to pay that loss for the structure itself.

In addition, the dwelling coverage is what all the other homeowner’s coverages are based on. Any structures unattached to the home, personal property and loss of use coverages are a certain percentage of the dwelling coverage.

For example, most homeowners policies will offer 10% of the dwelling amount for any structures unattached to the home like sheds or unattached garages. For this reason, it is critical to estimate the dwelling coverage as accurately as possible. Otherwise, you are potentially jeopardizing the other coverages on your policy.

Commercial Property Insurance

A commercial property insurance policy will offer dwelling coverage to a commercial structure or business. Understandably, the dwelling coverage tends to be higher on a commercial policy than on a homeowners policy because of the differences in size and construction of the buildings. But coverage works in the same way as a homeowners policy when there is a covered loss. If the building or any built-in appliance needs to be repaired or replaced, the dwelling coverage is what would pay for the damage.

In commercial property insurance policies, customers are typically given the option to choose between a replacement cost or an actual cash value policy. The difference between them comes down to how damages are valued in a loss. In a replacement cost policy, depreciation is not considered for a loss as it is in an actual cash value policy. With an actual cash value policy, the price may be lower, but the claim payments will be as well.

Landlord/Rental Property Insurance

A policy that covers a rental property is often referred to as a dwelling fire policy. This is not to be confused with the coverage provided for the structure, which is also called dwelling coverage. Much like the homeowners and commercial property policies, the dwelling coverage will be the limit from which payments are pulled in the event of a loss.

Unlike most homeowners policies that value claims on a replacement cost basis, some landlord policies will pay dwelling claims on an actual cash value basis. If you own an older property, you may want to consider the type of policy you purchase to ensure you get what you need.

What Does Dwelling Insurance Cover?

Dwelling insurance is typically just 1 coverage part of a more extensive insurance policy. While there can be differences in what each policy will cover specifically, insurance for the dwelling will typically cover similar structures and for some of the same events.

Types of Structures Typically Covered

  • Residential homes
  • Commercial buildings
  • Porches
  • Decks attached to the building
  • Garages attached to the building
  • Any appliances built into the home or building

Types of Perils Typically Covered

  • Fire
  • Theft
  • Vandalism
  • Wind
  • Hail
  • Smoke
  • Lightning
  • Explosions

What Is Not Covered by Dwelling Coverage?

As much as dwelling coverage may cover, there are always exclusions or things that will not be covered. It’s imperative to understand what is not covered so you can obtain coverage through another policy, if necessary.

The following are typically not covered under dwelling coverage:

  • Structures unattached to the building
  • Pools
  • Buildings that the insured does not own
  • Fences

There are also some perils that are not typically covered under dwelling coverage:

  • Floods
  • Earthquakes
  • Sewage backups
  • Wear and tear
  • Intentional damage

How to Calculate the Amount of Dwelling Coverage Needed

As discussed above, the amount of dwelling coverage on a policy is usually based on what it would cost to rebuild or restore the structure. However, this replacement cost should not consider the land to determine the value.

The amount of dwelling coverage needed excludes any value of the land and adds in extra costs such as debris removal and economies of scale. Therefore, it is important to insure for the replacement cost and not the market value of the building.

The replacement cost can be calculated by inputting specifics of the building into a replacement cost estimator. Based on the current construction costs and the specifics of the structure, an estimated replacement cost will be generated. This value is typically what is used for the amount of dwelling coverage.

Some companies will require customers to insure the building at least 90% of the replacement cost amount. Failure to carry at least 80% of the replacement cost will usually result in a coinsurance penalty that decreases the amount you would be paid for a loss.

Final Thoughts

When looking to insure your property, it is imperative to understand your policy. Knowing what is and is not covered under the dwelling coverage allows you to be better prepared for the unexpected. Remember to reference this guide as you navigate the complexities of property insurance.

Frequently Asked Questions

Q

Does renters insurance include dwelling coverage?

A

Renters insurance does not contain dwelling coverage because a renter does not own the building itself and is not responsible for repairing or replacing the structure if a loss occurs.

Q

How much dwelling coverage do I need?

A

The amount of dwelling coverage you need depends on the specifics of the building you are trying to insure. The best way to figure out the right coverage is to speak to a licensed insurance professional who can use a replacement cost estimator to determine the appropriate dwelling coverage for you.

About Maurice Draine

Maurice Draine is a former insurance agent, broker, underwriter tech, and agent sales support rep with over 15 years of professional writing experience. Maurice helps insurance, financial, and various online and ad agencies, create the words that drive customers to their websites and keeps them there.