Dwelling Coverage: How Is It Calculated?

Home Ideas Magazine - April 2019

Dwelling Coverage: How Is It Calculated?

Your home is most likely your biggest asset and it is crucial that you insure it properly. Odds are, you have no idea what your home is insured for. Do not worry, most people do not. What most people remember is their deductible and maybe their premium. Your homeowner’s insurance may have been put together by your mortgage broker and an insurance agent. I am going to talk about dwelling coverage (your house) and how it is calculated.

As an insurance agent, we use a computer program to determine the proper value to rebuild a house. It is very useful and accurate but it’s not a bad idea to call your local insurance agent to go through the calculation with them to make sure your home has the proper amount of coverage.

The most important part of your homeowner’s policy is the dwelling. If you look at your insurance policy or declarations page, it will be called coverage A. The dwelling coverage is what all your other homeowner coverages are based on. The dwelling coverage is also what will replace the structure in case of a total loss. Let me explain how we get to that number. As I mentioned earlier, you will want to look at your number and make sure that number is correct.

How do insurance agents come up with the number to determine the value of your dwelling? When a person calls our agency and asks, “I need a quote because we are buying a house,” we take the address and we enter the information in our quoting system. In our quoting system, the RCT goes through a public database and public records to gather information on the house. Fields are populated to help us determine how much it will cost to rebuild that specific house.

The RCT considers many aspects. Here are some the criteria questions:

What is the square footage of the house?

How many bathrooms does the house have?

What are the shingles made of?

How many fireplaces are in the house?

How big is the garage? Is it detached or attached?

Is there a crawlspace or basement? If so, what percentage is finished?

Is the kitchen upgraded?

What is the heat source of the house?

As you can see, the information is very detailed and can get the cost to rebuild your home down to the dollar. We also calculate the average cost to rebuild your house in your neighborhood. When you talk to your agent, you are going to want to make sure all the specifics of your home are put into the system.

One thing that confuses people is when a person buys a home for $200,000 and I tell them it has a replacement cost of $160,000. They ask, “Why isn’t the insurance company covering the home for $200,000?” Well, the land that house sits on has value and in a total loss the land is not replaced. The house is not being underinsured; it is being insured properly. If the property would be insured for $200,000, the house would be over insured, and the individual would be paying too much premium for their homeowner’s insurance.

If you have any questions about your homeowner’s policy, please contact your insurance agent or feel free to contact my agency.