Coverage A - Dwelling

Also known as Dwelling Coverage, the Coverage A Section of your homeowners insurance policy is the estimation of Replacement Cost of the physicial structure of the primary dwelling of your home. Coverage A only covers the physical structure of the dwelling and not any other structures such as guest house, fences, detatched garage etc. It does however cover an attached garage, meaning the structure is physically tied to the home and by wall and roof. A build in type garage is also covered, but it differs because the garage is bordered to the top by living area of the home.

Replacement Cost Calculation

A fair method to calculate dwelling coverage for your policy would be to estimate how much it would cost to build a home per square foot and multiply that number by the amount of square feet your house has. Construction costs may vary by locality and can change from as low as $60 to upwards of $200 per square foot for just a common construction grade home. More refined or upscale homes should use a higher cost per square foot for replacement in the $150-300 range. This also is dependent on locality. Reconstruction costs in Manhattan, New York are going to be significantly higher than in Sioux City, Iowa.

Marshall and Swift offers a report that you can obtain where you can more accuarately calculate your replacement cost. Many inusrance companies use their replacement cost calculation model to figure out what Coverage A limits should be set to.

My Loan is for $500,000. Why is my replacement cost only $225,000?

Replacement cost and Loan value are two different and unrelated figures. Your loan value incorporates everything contained on the property such as Land, Dwelling and Seperate Structures. Some of the cost you paid for your home could be the view you have from your property. You dont physically own the view, however the property you have located where it is is worth more because of its location. The land that your home sits on cant be damaged to the extent of your dwelling. The only real damage that can occur are natural disasters such as mudslide, earthquake and flood. Those events are not covered under a standard home policy without riders or addendums. If you live in an area that is prone to a natural disaster, you should also seek out insurance against that type of event.

Your Insurance Agent and Insurance Carrier

It is the responsibility of your Insurance Agent or the Licensed insurance professional whom is writing the policy on your home to determine what coverage limits you need on your homeowners policy as well as any natural disaster policies that might apply to your case. They will determine the proper replacement cost coverage for your home and apply it to your policy. Any errors made by them can be assessed against their Errors and Ommissions insurance if it is determined it was a mistake made by the agent. Insurance carriers also carry some portion of this responsibility in that they have requirements for each agent to follow in writing a policy as well as providing replacement cost calculators to determine coverage amounts and verifying that the coverage is correct.

Being Overinsured

The worst case you should encounter is being overinsured, in which case you will be paying too much money for your insurance than you could be. If it only costs $300,000 to replace your home but you are insured for $500,000. You are likely paying up to 40% more than you should be on your insurance premium. Many policies allow for an Extended Replacement Cost that will add an additional percentage of 25-50% on to whatever is listed for Dwelling Replacement on the policy. Some companies also offer Guaranteed Replacement Coverage, which does exactly what it says regardless of the amount set for Dwelling Coverage on the policy.

GetCoveredUSA.com Insurance Tip: Let your insurance agent figure out the best amount for Dwelling. Also do a little research on your own and double check the amount. You can call a local builder or check with the Marshall and Swift site to find out what it would cost to rebuild your home. Get extended or guranteed replacement coverage when its available for the added security.