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Dwelling coverage is the primary segment of homeowners’ insurance. It covers the main house or structure as well as any structures immediately adjacent to it. For example, an attached garage would be included in dwelling coverage, but a separate shed would not.

To determine how much dwelling coverage you need, you must know how much it will cost to rebuild your home.

Rebuilding vs. Market Value

It is important to realize that the cost of completely rebuilding your home is different from your house’s market value. The market value includes all structures on your property as well as the land on which it sits, while rebuilding costs are related only to the structure itself.

Furthermore, market value prices will shift more frequently and in greater amounts than rebuilding costs. You need to know how much you will have to pay out if your home is destroyed in a fire or other natural disaster.

Covered Perils

Dwelling coverage is part of a standard homeowner’s insurance policy, and therefore covers only certain perils that might destroy your house. Fire and lightning strikes, for example, are generally covered under this portion of your policy, while flooding and earthquakes usually are not.

You will need an endorsement or rider to covered perils that are not named under dwelling insurance.

Dwelling coverage will pay to rebuild part of your home or the house in its entirety, depending on the extent of the damage. And since tragedy can strike at any time, you’ll want to purchase sufficient insurance if the worst should happen.

Calculating Rebuilding Costs

There are several ways to determine your rebuilding costs when you purchase dwelling coverage. Many websites offer free calculators that will give you a rough estimate, but you’ll probably want something more accurate and specific. An insurance professional can give you the answers you need.

If you don’t buy enough dwelling coverage and your house is completely destroyed, you’ll have to make up the difference out of pocket. This is not possible for many homeowners, so it is best to insure your home for what it will actually cost to replace.

Changing Dwelling Coverage

Your dwelling coverage needs may change from time to time. For example, if you complete a kitchen renovation or add an extra story to your house, you will need to increase your coverage limits to make up the difference in rebuilding costs.

And even if you don’t make any major changes to your home, things like inflation and the economy can impact replacement cost. Re-evaluate your home insurance coverage needs every five years or so to make sure you have sufficient protection.

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