What is dwelling coverage and how much do you need?

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Dwelling coverage is the main part of a homeowners insurance policy and pays to repair or rebuild your home after a covered loss, such as fire or vandalism. It covers the structure of your home, including things like the roof, windows, and siding and interior features like flooring and cabinets.    

It is critical that you purchase the correct amount of coverage for your specific property so you are not left financially responsible in the wake of a disaster. Your dwelling coverage should equal the current replacement cost of your home at today’s prices.

“Insurers pay claims up to the limits in your policy. However, if you don’t have enough coverage, you could face a significant insurance gap which would make you responsible for covering the difference if the claim payout is not enough,” says Mark Friedlander, director of corporate communications at the Insurance Information Institute.

Before you choose the dwelling coverage limit on your home insurance, find out how to estimate the replacement cost for your dwelling coverage so you can shop with a number in mind, and how to get the most accurate replacement cost calculation.

How much dwelling coverage do I need on my homeowners insurance?

Most home insurance policies use replacement cost value to calculate your dwelling coverage. Replacement cost is how much it will cost based on today’s prices to replace your home after a covered loss. Your home will be repaired or rebuilt up to your coverage limits, so you need to get it right.

Wondering how to calculate dwelling coverage? 

You should purchase coverage in a dollar amount equivalent to 100% of the cost of rebuilding your home from scratch at today’s prices. If your dwelling coverage falls below 80% of the home’s full replacement cost, your insurer can refuse to pay out your claim in full. 

“It’s important to insure your home for at least 80% of its replacement cost (listed as dwelling coverage or Coverage A on the declarations page of your policy). If you suffer a covered loss and your home is insured for less than 80% of its replacement cost value, your insurer may cover less than the full amount of your claim,” Friedlander says.

Building and repair costs change over time with inflation, so it is crucial to keep an eye on your dwelling coverage limits to make sure they do not slip below the replacement cost for your home. Your insurance company will review and increase your dwelling coverage limit annually to keep it in line with inflation and current costs. It may also be possible to get an inflation guard endorsement that ensures you’re covered even if inflation in the middle of the policy term causes you to become underinsured.

Patrick O’Keefe, owner of Cascade Insurance Center, recommends consulting a licensed agent for help calculating the right amount of coverage for your home. “These calculators factor in the price of goods and labor in your ZIP Code, along with features of the house which include square footage, quality (and) unique features,” he says. 

When determining how much insurance to buy, don’t forget to consider your lender’s requirements for dwelling coverage. Most lenders require that you purchase replacement cost coverage to protect your home loan. If you have a home loan, be sure to check with your lender to ensure you purchase enough coverage to meet the terms of your loan.  

The 80% rule is an insurance company requirement to ensure that you have enough dwelling coverage and are paying the correct premium amount for the coverage you need. However, you should always aim for 100% of the replacement cost and not assume you’re safe with 80% coverage.

“It’s important to note that insuring your home for 80% of its replacement cost value is a general guideline. Some home insurers may require higher percentages of coverage or they may have built-in policy features that automatically account for increased replacement costs due to inflation. Your insurance agent can explain this to you.” Friedlander says.

How is dwelling coverage calculated?

To calculate how much dwelling coverage you need, you first need to know the replacement cost of your home. This is how much it would cost to repair or replace your home at today’s prices, so you want to be sure that you are using the most current construction costs for your local area. A real estate agent or home construction company can help you get a ballpark figure of the average construction cost per square foot in your area. 

Once you have the cost per square foot, you can estimate how much dwelling coverage you need. All you need to do is multiply the square footage of your home by the square-foot price of local rebuild costs. 

Our dwelling coverage calculator can help you estimate how much dwelling coverage you need. 

However, keep in mind that this is just a loose estimate. A property appraisal remains one of the best ways to receive a proper replacement cost calculation since it takes into account all of the little details that make up your home’s construction.

Insurance companies also have tools that will provide a far more accurate replacement cost calculation.

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What is replacement cost coverage?

Replacement cost coverage provides policy limits that match the actual replacement cost of your home today.

Your home’s replacement cost is not the same as its market value. Replacement cost is the amount that would be required to rebuild your home from the ground up; it includes only the structure and attached structures like a deck. 

The market value of your home can fluctuate significantly over time and is impacted by things like the value of the land, current overall market conditions and even the little things that make people want to buy a home, like a view, a school district or proximity to parks.

None of these things affecting market value have anything to do with the cost of rebuilding your home, so there is no need to take them into account when calculating replacement cost

We recommend that you talk to your insurance agent before you buy so you can ensure that you are not purchasing too much or too little coverage for your property.

What is extended dwelling coverage?

Extended dwelling coverage, commonly called extended replacement cost coverage, provides an extension of your dwelling coverage limits to allow for changes in construction costs over the policy term.

“Extended dwelling coverage is designed to give wiggle room from the replacement cost coverage listed on your policy,” O’Keefe says.

For example, during the pandemic supply chain issues caused the cost of construction materials to soar. In such situations, extended dwelling coverage can provide the extra insurance you need to repair or rebuild your home. It usually allows for an additional 25% or 50% on top of the coverage limit.

So, if you have dwelling coverage of $100,000 and 125% extended replacement cost coverage, your actual available limit is $125,000.

“This is included in many policies, but not all,” O’Keefe says.

O’Keefe says a licensed insurance agent can help advise you on whether extended dwelling coverage is right for your specific situation. 

You may also be able to add a guaranteed replacement cost endorsement, which ensures that your home will be rebuilt regardless of how far past the limit the cost turns out to be.

What is covered under dwelling insurance?

Dwelling insurance covers the structure of your home inside and out. If lightning from a summer storm strikes your house and starts a fire, the damage will be covered. If a winter storm piles up snow that causes your roof to collapse, dwelling coverage will pay for a new roof.

Standard homeowners insurance policies are all perils or open perils. That means that the policy covers any peril that is not specifically excluded. This includes damage from storms, fire, smoke and vandalism. Other covered hazards include things such as accidental discharge or overflow of water or steam, freezing of a plumbing, heating or air conditioning system and more.

Dwelling insurance covers the home inside and out, including the roof, siding, windows, flooring, fixtures and cabinets. It also covers any structures permanently attached to it, like an attached garage, deck or porch.

What isn’t covered under dwelling insurance?

Dwelling coverage doesn’t cover your personal property, and it doesn’t cover unattached structures on your property; these are covered by other sections of your policy.

While a standard home insurance policy is all perils, not everything is covered; there are several common home insurance exclusions. Dwelling coverage won’t cover damage from these perils.

For example, flood damage isn’t covered by a standard homeowners insurance policy, and neither is earthquake damage.

If you live in an area prone to floods or earthquakes, you will need a separate flood insurance or earthquake insurance policy. You can also add an earthquake endorsement to your homeowners insurance policy in some cases.

Other common exclusions are:

• Water and sewer backup
• War
• Nuclear disaster
• Wear and tear or lack of maintenance
• Intentional damage
• Pests infestations
• Mold, with some limited exceptions

Your insurance company representative can provide more details about what is or isn’t covered by your policy so you can get additional coverage if necessary.

Home insurance cost by dwelling coverage in your state

The cost of your home insurance largely depends on how much dwelling coverage you buy. Dwelling coverage is responsible for the bulk of your home insurance costs and can significantly impact how much you pay.

This is a look at how dwelling coverage levels impact the cost of home insurance in different states. 

TABLE: Home insurance rates by state at different dwelling coverage levels

Estimate home insurance costs based on dwelling coverage by ZIP code

Where you live can also impact how much you pay for dwelling coverage. The reasons for this include differences in risk (some areas are more prone to severe weather than others) and differences in construction and labor costs.

Take a look at how dwelling coverage costs vary by ZIP Code.

How much dwelling coverage do you need for a condo?

The amount of dwelling coverage, usually called building property coverage, you need on a condo insurance policy depends on what the master insurance policy for the building covers, so be sure to check the building property coverage with the condo association to see what type of coverage is included. 

You need enough coverage for any portion of the structure for which you are responsible; this may be everything from the walls in or only upgrades you have made to the interior.

Why is my dwelling coverage so high?

The cost of dwelling coverage may seem high, but remember that this insurance coverage is designed to completely rebuild your home from the ground up. It may be higher or lower than the market value

“Dwelling coverage is the replacement cost value of your home. It is an essential component of your policy. It is the largest component of an insurance policy in terms of how your premium is determined. It’s important for homeowners to make sure they have adequate dwelling coverage to ensure they are protected from all perils included in their policy. It’s also important to note that replacement cost value is not the same as real estate market value of your home,” Friedlander says.

The market value is the value of your home based on the real estate market, which includes the cost of your land. It takes into consideration area appeal, as well as values for comparable properties in the neighborhood.  

With insurance costs on the rise, it helps to get a quote before purchasing a new home, says O’Keefe. 

“We strongly recommend anyone looking at making an offer on a home to look into insurance early in the process. It can be as simple as giving their agent an address to look into,” he explains. “Of course, a mortgage company will need [to] confirm coverage is in place before giving a loan, but [it is] better to know earlier than later if there will be any issues getting insurance.”

Experts generally recommend insuring at your home’s full replacement value. For that reason, dwelling insurance might be more expensive than you like. However, the peace of mind that comes from knowing your home is covered is well worth it.

Methodology

Insure.com conducted an analysis of average rates from Quadrant Data Services in 2024 fielded from all 50 states and Washington, D.C., and encompassing 34,588 ZIP codes. Rates were analyzed for five dwelling coverage levels with a $1,000 deductible, and the dwelling portion of the policy cost extracted from the total premium. The analysis included 62 home insurance companies and is based on a good credit tier.

Lena Borrelli

Contributing Researcher

 

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Lena Borrelli is a freelance writer from sunny Tampa Bay who has worked with such leading industry titans as Gronk Fitness, Morgan Stanley, Wells Fargo and Simon Corporation. Her work has most recently been published on sites like TIME, Microsoft News, Bankrate, Investopedia, Fiscal Tiger, The Simple Dollar, ADT and Home Advisor.

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