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Home Dwelling Coverage Formula:
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Home dwelling coverage is the portion of a homeowners insurance policy that pays to repair or rebuild your home if it's damaged by covered perils like fire, wind, or hail. It's typically calculated as 120% of the home's replacement cost to account for potential cost increases during reconstruction.
The calculator uses the dwelling coverage formula:
Where:
Explanation: The 20% buffer helps ensure you have adequate coverage if construction costs rise unexpectedly during the rebuilding process.
Details: Proper dwelling coverage is essential to avoid being underinsured after a major loss. Underinsurance can leave homeowners responsible for significant out-of-pocket expenses to complete reconstruction.
Tips: Enter the estimated replacement cost of your home in dollars. This should be based on current construction costs in your area, not your home's market value or purchase price.
Q1: Why is dwelling coverage calculated at 120% of replacement cost?
A: The extra 20% provides a buffer for unexpected cost increases, building code upgrades, and debris removal that may occur during reconstruction.
Q2: How often should I review my dwelling coverage amount?
A: Annually, or whenever you make significant improvements to your home. Construction costs typically increase 3-5% annually.
Q3: What's the difference between market value and replacement cost?
A: Market value includes land value and market conditions, while replacement cost only considers what it would cost to rebuild the structure itself.
Q4: Does dwelling coverage include detached structures?
A: No, detached structures like garages or sheds typically have separate coverage, usually 10% of your dwelling coverage amount.
Q5: What if my home has unique features or custom construction?
A: You may need additional coverage or a specialized policy. Consult with your insurance agent for homes with high-end finishes or unique architectural features.