Homeowners Insurance Policy Property Coverages – Part 1 – Dwelling Coverage

Homeowners Insurance Policy Property Coverages – Part 1 – Dwelling Coverage

Now that you have found your dream home, or completed your rebuild or renovations, it's time to to purchase a Homeowners Insurance policy to protect your investment. The proper evaluation of a Homeowners Insurance policy begins with the determination of Dwelling coverage.

Dwelling coverage is the amount of money granted by a Homeowners Insurance policy to rebuild the building structure that creates the living space of your home, including any attached structures or structures, for example built-in cabinets, that are permanently affixed to the home structure. Dwelling coverage is one of the most important components of Homeowners policy coverage as many other coverage amounts are functions of the Dwelling coverage limit. In addition, much of the Homeowners policy premium is driven by the Dwelling coverage.

Dwelling coverage should be equal to the replacement cost of the home, or the cost to rebuild the same home in the event of a total loss. Dwelling coverage should not be equal to the market value of the home or to the appraised value of the home as determined during a sale or a refinance. In fact, in many cases considering the current economic conditions, the cost to rebuild a home from the ground up is actually more expensive than the market value of the home. As a result, the Dwelling coverage on a Homeowners Insurance policy can be higher than the market value of the home.

Dwelling coverage is generally evaluated on a cost per square foot basis. Throughout the majority of the greater Bay Area, the low end of the appropriate range of Dwelling coverage is approximately $325-$375 per square foot. Thus, a 2,000 square foot home in Burlingame would need an average of at least $700,000 of Dwelling coverage. However, larger homes or homes with significant custom features would need even higher coverage per square foot.

Many carriers will conduct a replacement cost appraisal of a home (at no charge) once a policy is in place to further evaluate the appropriateness of Dwelling coverage. A replacement cost appraisal is a great record of the homes features and can be very useful in the case of a large loss.

Carrying proper Dwelling coverage limits on a Homeowners policy is extremely important because if the coverage limit is inadequate to rebuild your home in the event of a loss, certain policy features may become null and void and you may be forced to liquidate assets to rebuild your home. Most homeowners don't have enough insurance to full rebuild after a total loss. Don't let this happen to you!

This guest post is part of the series Uninsured - Tips to Protect Yourself Using Insurance written for the Burlingame Properties blog by Meghan O'Neill Hanson. Meghan is a personal insurance expert at MacCorkle Insurance Service in Burlingame and works with clients throughout the peninsula. She has worked previously as a CPA at PricewaterhouseCoopers as well as at the private equity firm Kohlberg Kravis Roberts & Co (KKR). Meghan is a Bay Area native with roots in thoroughbred horseracing throughout Northern and Southern California.