How Much Dwelling Coverage Do You Need?

If you want to protect your home for when the unexpected occurs, like your coffee machine causing a fire in your kitchen or someone vandalizing your house, purchase a homeowners insurance policy. Homeowners insurance can safeguard your most valuable asset by helping cover the cost of repairing or rebuilding the structure, replacing your belongings, and more.

A homeowners insurance policy is broken into six parts, covering different areas of your home. One part of the policy is dwelling coverage, which protects the interior and exterior structure. Keep reading to learn more about how much dwelling coverage you need and the best insurance companies for this type of coverage.

What is Dwelling Coverage?

Dwelling coverage, also known as Coverage A, protects the physical structure of your home, helping you cover the costs of repairing or rebuilding it, up to the limit of your policy, if it is damaged or destroyed from certain perils. Covered perils differ based on your specific policy, but here are some that are included in most:

• Fire/smoke
• Lightning strikes
• Hail
• Windstorms
• Explosion
• Vandalism
• Theft
• Falling objects
• Damage from the weight of sleet, ice, or snow
• Damage from an aircraft
• Damage from a motor vehicle

Dwelling coverage doesn’t typically protect your home from natural disasters like earthquakes and floods. Detached structures like an independent garage or shed are in a different part of your policy.

How Much Dwelling Coverage Do You Really Need?

Typically, homeowners insurance policies offer dwelling coverage as a percentage of how much your home would cost to rebuild. Note that this is not the same as the appraised value of your home or the value of your home when you purchased it. Homeowners insurance companies usually give you a choice, allowing you to pick 100% of the value or less if you want to save money. However, we recommend choosing 100% so that you don’t have to pay any expenses out of pocket.

Types of Dwelling Coverage

Here are the four forms of dwelling coverage from least to most comprehensive.

Actual Cash Value

This coverage covers the cost of rebuilding your home as is with the older built-in systems, appliances, and materials. Since certain elements of your home like your plumbing system, roof, and floorboards have likely depreciated in value over time, actual cash value won’t completely cover the cost of rebuilding your home, as most people are going to use new materials in a rebuild instead of old ones.

Replacement Cost

This type covers the cost to rebuild your home at the current material and labor prices. A policy with this type of dwelling coverage will cost more, since it’s giving you more coverage.

Extended Replacement Cost

Extended replacement cost adds onto your replacement cost coverage limit. It’s usually available as an endorsement in increments between 10% and 50%. It’s meant to help in the case that rebuilding costs rise unexpectedly above what your house would normally cost to rebuild.

For example, let’s say your home costs $400,000 to rebuild under normal circumstances. If a wildfire wipes out your whole neighborhood, rebuilding costs will increase because of high demand, causing your home to cost $500,000 to rebuild instead of $400,000. If you have an extended replacement cost endorsement of 25%, it will cover this extra $100,000. Otherwise, you would have to pay for it out of pocket.

This type of coverage is especially useful in areas that are prone to natural disasters, as wide-scale incidents are likely to increase the rebuilding costs of an entire area.

Guaranteed Replacement Cost

Guaranteed replacement cost is the highest form of dwelling coverage available. It’s usually an endorsement like extended replacement cost. However, it doesn’t have any limits. For example, if your house is damaged by a wildfire, your insurance company will pay for the entire repair regardless of the cost. This takes the guesswork out of extended replacement cost because you won’t have to decide how high above replacement cost you want to go with your coverage.

How to Calculate Replacement Cost Coverage

There are three ways to calculate how much it will cost to rebuild your home:

1. Calculate it yourself: You can take the square footage of your home and multiply it by your local construction costs. These costs are usually available on construction company websites.
2. Find a free online calculator: Most insurance companies have calculators that ask you questions about your home like the type of roof, the number of rooms, and the type of flooring. They will take these answers and calculate the replacement cost for you.
3. Contact an appraiser: A local appraiser will have intimate knowledge of the housing market and be able to tell you how much it would cost to rebuild your home.

Factors that Affect Replacement Cost

Following any of the above steps will give you a rebuilding estimate. However, your rebuilding cost can change over time due to a variety of factors, including:

• An increase in labor and material costs
• New building codes with stricter requirements
• Renovations

Our Top Recommendations for Homeowners Insurance

The This Old House Reviews Team has evaluated several homeowners insurance companies to determine the best options out there based on key metrics like levels of coverage, customer service quality, affordability, and more. Here are our recommendations for the best homeowners insurance companies for dwelling coverage and beyond.

Allstate: Best Overall

Allstate offers extensive coverage and high-quality customer service, earning it the superlative of best overall. Key features include:

• 24/7 customer service for all claims, policy, sales, and billing questions
• Choice of 60% or 75% of dwelling coverage for personal property coverage
• Claim rate guard endorsement that doesn’t increase your premium if you file a claim

Amica: Best Liability Coverage

Amica provides comprehensive coverage, especially for liability to protect you from incidents where you’re responsible for bodily injury or property damage. Key features include:

• Liability coverage between $25,000 and $1 million
• Mobile app, online chat, and customer portal for self-service
• Catastrophic coverages endorsement for natural disasters

Lemonade: Quickest Sign-Up

Lemonade is a newcomer in the home insurance space that offers a technology-driven approach to insurance. Key features include:

• Affordable rates starting at $25/month
• Approval and payment of most claims instantly
• Giveback program that donates unused policy money to charities