What is dwelling coverage? What Coverage A pays to rebuild

Dwelling coverage pays to repair or rebuild the house you live in. In the standard form many insurers use, it covers the house at the address in your policy, plus attached structures. It also covers building materials kept on the property for repairs.

Think of it this way: if you could turn your house upside down and shake it, the things that stay attached are usually dwelling items. The things that fall out are usually your belongings.

Your exact list depends on your policy. Items like wall-to-wall carpet or built-in appliances can be treated differently from one policy to the next.

Dwelling coverage only pays when the damage comes from a cause the policy covers. Insurance calls a cause of loss a peril. The most common homeowners policy, the HO-3, covers the house against every peril except the ones it lists as excluded. Fire, lightning, wind, hail, the weight of snow and ice, a sudden burst pipe and a falling tree are usually covered. Other policy types cover only the perils they name.

Common gaps in a standard homeowners policy include:

• Flood. Rising water needs a separate flood policy, often through the National Flood Insurance Program. See our guide to flood insurance claims if water came from outside.
• Earthquake. Usually a separate policy or add-on.
• Wear, tear and poor upkeep. Slow damage and lack of maintenance are usually excluded.
• Sewer backup and mold. Many policies give limited or no coverage unless you bought an add-on.

Some coastal policies also exclude wind and hail. In that case, wind coverage comes from a separate policy or a state wind pool, such as the Texas Windstorm Insurance Association on the Texas coast.

Other structures coverage, often called Coverage B, pays for buildings on your property that aren’t attached to the house. In the standard form, a structure counts as separate when clear space sits between it and the house. A fence or utility line connecting them doesn’t change that.

Examples include a detached garage, a shed, a gazebo, a guest cottage and fences. Many policies set this limit at 10% of the dwelling limit. So a home insured for $300,000 would often have $30,000 for other structures. Using Coverage B doesn’t reduce the money available for the house.

Two common exceptions: structures rented to someone outside the household, and structures used for a business, are often not covered.

Your dwelling limit is the most the insurer will pay to fix the house for one loss. Your deductible (the part you pay first) comes off the payment. Our guide to percentage and flat deductibles explains which one applies.

In the standard replacement cost form, the insurer pays the smallest of three numbers:

1. Your dwelling limit.
2. The cost to repair or replace the damaged part with material of like kind and quality.
3. The amount you actually spend on the repair.

Many policies also pay in two stages. First you get the actual cash value, which is the repair cost minus depreciation (wear and age). The held-back amount is paid after the repair is finished. In the standard form, if you take the actual cash value payment first, you must tell the insurer within 180 days of the loss that you plan to claim the rest. Your policy or state rules may differ. Our guide to actual cash value and replacement cost walks through both checks, and the recoverable depreciation guide shows how to request the second one.

Standard forms also include extra coverages for the house, though your insurer’s amounts may differ. Some are paid on top of your limit and some come out of it:

Many replacement cost policies expect your dwelling limit to be at least 80% of what it would cost to rebuild your home right before the loss. If it’s lower, the insurer may pay less, even for a small claim.

Here’s how the standard form figures it. Example numbers only:

• It would cost $400,000 to rebuild the house. 80% of that is $320,000.
• The dwelling limit is $240,000, which is 75% of $320,000.
• A storm causes $40,000 of damage.
• The insurer pays the larger of two amounts: the actual cash value of the damage, or 75% of the repair cost after the deductible. Before the deductible, 75% is $30,000.

This is why an old limit that was never raised can hurt you after building costs go up. Your policy or state may word this differently, so read the loss settlement section.

These are add-ons, often called endorsements, that help when rebuilding costs more than your limit. That often happens after a large disaster, when labor and materials get scarce.

These add-ons usually have conditions. Some require you to actually rebuild, or to have kept the limit up to date. Look for them in the endorsement list on your declarations page, the summary page at the front of your policy.

Claims Answer Man teaches one habit early: know what your policy says before the inspection, not after the estimate arrives. Before the visit, write down:

• Your dwelling limit and the deductible that applies to this type of damage.
• Whether the house is settled at replacement cost or actual cash value. Some policies pay roofs differently from the rest of the house.
• Any add-ons, such as extended replacement cost or extra code coverage.
• Every damaged part of the house, room by room, including the attic, the attached garage and outside walls.
• Detached items, like the fence or shed, so they go on the Coverage B part of the claim.

To keep the rest of the claim in order, get the free claim checklist. Our article on what an insurance adjuster does explains who the adjuster works for and what happens after the visit.