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Homeowners insurance dwelling coverage explained

What Is Dwelling Coverage?

Dwelling Coverage or Coverage A is the primary coverage on the homeowners, condo owners, or dwelling fire policy. It covers repairing or rebuilding your home due to a covered peril. 

The covered perils or causes of loss can be found in your policy. Most policies cover fire, lightning, windstorm, and hail; many homeowners and condo owners’ policies are written on an ‘all risk basis’ meaning all perils not specifically excluded are covered.

Standard homeowners policies exclude coverage for earthquake and flood. You need separate policies to cover these perils.

Sewage backup, sump overflow, mudslide, war, government action, slowly accumulating water damage, damage from pests, and sinkholes are also excluded from most homeowner’s policies. You can request an endorsement to cover sump overflow and sewage backup. Sinkhole coverage can be purchased on a separate policy, but it can be expensive.

Dwelling coverage excludes claims that happen because the property was not properly maintained. It is important to keep up with routine maintenance and report claims in a timely fashion, otherwise, part or all the claim may be denied.

You need to purchase enough coverage on your dwelling to cover the cost to rebuild your dwelling in the event of a total loss. The replacement cost is different than the market value or tax value:

  • Replacement cost is the cost to rebuild your home exactly like it is, without any added value for the land.
  • Market value is the amount your home and land would sell for if you sold your home today.
  • Tax value is the value assessed by the city or county for the value of your home, with depreciation, and the value of your land.
  • Actual cash value is the cash value of your home in its current condition. Many companies use the tax value of the dwelling as the actual cash value for insurance purposes.

The amount of coverage on your dwelling determines the limit of personal property, other structures, and loss of use. These coverages are a percentage of your dwelling coverage and are included in the price with homeowners and condo owners, dwelling fire policies can be endorsed to include these coverages.

What needs to be included in Dwelling Coverage? How much Coverage do I need?

Your dwelling coverage covers more than just your home itself. The value of your dwelling needs to include:

  • Grading and foundation costs
  • Attached garage
  • Attached deck
  • Screened-in patio
  • Inground pool
  • Any permanently installed features such as steam showers, custom tile in the kitchen, large fireplaces
  • All built-in appliances (other appliances are covered under contents coverage)

When you are determining a value for your home, make sure the agent or company helping you with the replacement cost estimator knows about all the special features of your home.

These features, the age of your home, and the construction style will affect the replacement value considerably. Older homes will have a much higher replacement cost because the style of construction and materials used in the early 1900’s are more expensive than materials common today.

What is not included in the replacement cost of your dwelling:

The replacement cost of your dwelling should only cover your dwelling and the structures that are permanently attached to the dwelling. If it can be removed, it is covered under your content’s coverage. If it is a permanent part of the dwelling structure it needs to be included in the replacement cost of your dwelling.

Your replacement cost of the dwelling or condo will be based on:

  • The square foot of the dwelling
  • The cost of construction and labor in your area
  • Age of the dwelling
  • Style of construction
  • Exterior and interior construction materials
  • Any custom-built features

The most accurate valuation of your home is from a licensed home appraiser in your area. You should update your appraisal every 3 – 5 years or after any major renovations or remodels have been completed. 

If you do not have a current appraisal your agent or company may offer to help you create a value with a replacement cost estimator. These tools provide a general guideline of the replacement cost but are not as accurate as an appraisal.

Types of Dwelling Policies

There are several common homeowners forms that offer different levels of coverage. The most common homeowners form is the HO-3, but you may be offered one of the other forms. 

  • HO-2. The HO-2 policy is a “named peril” policy. This form covers about 15 named perils, including fire, lightning, windstorm, hail, explosion, riot, vandalism and malicious mischief, and theft. Some mortgage companies will not accept the HO-2 if you purchase this policy form check with your mortgage company to make sure they accept it!
  • HO-3. The HO-3 policy is a special form policy that covers all perils, except those specifically excluded. The most common exclusion are earthquakes, floods, landslides, mudslides, nuclear accidents, and sinkholes. Overflow of septic and sewer backup are also excluded under the HO-3.
  • HO-6. The HO-6 covers condo owners. The covered perils are the same as the HO-3, but it only covers the dwelling from the outside walls in and coverage for the roof is optional depending on the contract with the condo association. The dwelling coverage limit on a condo owners policy needs to cover the structural components required in the contract and the walls, built-in appliances, floors, and roof trusses.
  • DP-2. The DP-2 is the fire policy equivalent of the HO-2. This policy is a landlord coverage for rental dwellings or homes that are not owner-occupied. It is a named peril policy with the same 15 named perils that the HO-2 policy covers. 
  • DP-3. The DP-3 is the fire landlord policy equivalent of the HO-3. It offers open peril coverage for rental or homes that are not owner-occupied. It offers the best coverage for homes that do not fit a homeowners policy. 

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