What is dwelling coverage? A guide to Coverage A

Your home is likely your biggest investment. Dwelling coverage, also known as Coverage A, is what protects it. One of several parts of a homeowners insurance policy, dwelling coverage helps pay to repair or rebuild the physical structure of your house after a covered loss. 

What is dwelling coverage?

The dwelling coverage portion of a home insurance policy protects the “bones” of your house, meaning the physical components of the structure. This typically includes:

• Interior and exterior walls
• Roof and foundation
• Floors and ceilings
• Built-in appliances and fixtures
• Electrical, plumbing, and HVAC systems
• Attached structures, such as decks, porches, or garages 

It’s important to note that dwelling coverage isn’t the same as dwelling insurance. Dwelling coverage is a component of a standard homeowners policy. Dwelling insurance, commonly referred to as a DP policy, is a standalone specialized policy often used to protect rental properties or non-owner-occupied homes.

What does dwelling coverage protect against?

What’s covered by dwelling coverage can vary depending on the insurance company and your policy specifics. However, standard homeowners policies insure the dwelling against damage caused by any hazards (called perils in the insurance world) that are not specifically excluded. This is known as open-perils coverage. 

Common covered perils include:

• Fire and lightning
• Windstorms and hail
• Explosions
• Theft 
• Vandalism
• Falling objects
• Weight of ice, snow, or sleet
• Volcanic eruption

What is excluded from dwelling coverage?

While dwelling coverage offers broad protection, it doesn’t cover everything. Here are some common exclusions:

• Earthquakes
• Flooding
• Neglect
• Normal wear and tear
• Nuclear accidents
• Landslides
• Mudslides 
• Sinkholes 

If you’re concerned about coverage gaps due to exclusions, you may be able to add on optional coverage (called an endorsement) or purchase a separate policy. For example, if you live in a flood-prone area, you can get flood insurance. Or if you’re worried about earthquakes, you can secure an earthquake policy.  

How much dwelling coverage do I need?

Ideally, your dwelling coverage (Coverage A) limit should equal 100% of your home’s replacement cost. This figure reflects the total estimated cost to rebuild your home from the ground up, factoring in today’s rates for labor and materials. 

Here are several features that impact a home’s rebuild cost, and in turn, how much dwelling coverage you need:

• Total square footage
• Type of exterior wall construction (brick, frame, stone, etc.)
• House style (colonial, ranch, etc.)
• Number of bedrooms, bathrooms, and specialty rooms (sunroom, den, library, etc.)
• Custom features like arched windows, fireplaces, or unique flooring

Notably, a home’s replacement cost is different from its market value, which is what a buyer would pay for the house. Market value also includes the land the home sits on. However, insurers don’t cover the land; they only cover the buildings on it.

Policy limits and deductibles for dwelling coverage

Replacement cost is only one factor to consider when choosing your dwelling coverage amount. You’ll also need to determine your policy limits and deductibles.

Policy limits

Your dwelling coverage policy limit is the maximum amount your insurer will pay for a covered loss to your home's structure. It also acts as the basis of the rest of your policy because your other coverages are typically calculated as a direct percentage of this amount. 

Unless you request specific changes, your protection for other structures (Coverage B), personal property (Coverage C), and loss of use (Coverage D) is tied to your dwelling coverage (Coverage A). So if your dwelling limit is set too low, you aren't just underinsuring the house itself, you are likely underinsuring your belongings and your living expenses, as well.

Here’s a visual breakdown of how other policy limits are typically set based on the dwelling coverage amount.

Deductibles

Your deductible is the amount of damage you agree to pay out of pocket in the event of a covered claim. Insurance kicks in to help pay for the rest, up to your policy limit. 

While selecting a higher deductible will make your policy cost (known as your premium) cheaper, it’s important to choose your deductible wisely. Make sure it’s an amount you can easily pay at a moment’s notice without straining your finances.  

You may have two types of deductibles to choose from, depending on where you live and your insurance company. 

• Standard deductibles are fixed dollar amounts, such as $1,000 or $2,500 per claim. 
• Percentage deductibles are calculated as a percentage of your Coverage A limit (not a percentage of the claim amount). They’re common for specific perils like hail, wind, and named storms. So, if you have a 2% wind deductible and a dwelling limit of $300,000, that means you’d be responsible for the first $6,000 ($300,000 x 0.02) of your covered wind damage claim.

The 80% rule (coinsurance clause)

Most insurers use the 80/20 rule, which requires you to insure your home for at least 80% of its replacement cost value to receive full compensation for a covered claim. If you don’t, you could face a coinsurance penalty, meaning the insurance company will reduce your payout proportionally. 

Let’s say your replacement cost amount is $400,000. You’d need at least $320,000 ($400,000 x 0.8) in dwelling coverage to satisfy the 80% rule. But you decide to only insure it for $240,000, or 60% of the replacement cost. 

Now, let’s say you have a $100,000 loss. Since your coverage is only 75% of what it should be ($240,000/$320,000 = 0.75), your insurer may only cover 75%, or $75,000 of your claim, which means you’d have to cover the remaining $25,000, plus your deductible.

Frequently asked questions

Is dwelling coverage the same as homeowners insurance?

No, dwelling coverage is only one part of a homeowners insurance policy. Home insurance also includes personal property, liability, and loss-of-use coverage. 

Does dwelling coverage include the land?

No. Home insurance only covers the structures on the land, not the land beneath it. The value of the land is never included in the dwelling coverage limit.

What happens if my dwelling coverage limit is too low?

If your dwelling coverage limit is below 80% of the replacement cost, you could get a lower payout due to coinsurance penalties in the event of an approved claim. That means you may have to pay part of the rebuilding costs out of pocket, in addition to covering your deductible. 

What is the difference between dwelling coverage vs. dwelling insurance?

Dwelling coverage and dwelling insurance sound like the same thing, but they’re very different.