Will Your Dwelling Be Fully Covered By Your Home Owners Insurance?

Although it is something that you probably do not like to think about, what would happen if your entire home was destroyed? Would you have enough coverage to rebuild your home from scratch? Unfortunately, the answer for most homeowners is probably not. While your insurance company will pay in the case of a total loss, it will only pay up to your dwelling limits. But what does that mean? What does that cover? Is it the cash value or a replacement value? There is a difference between the two.

What Are Dwelling Coverage/Limits?

Dwelling limits simply put is the amount of insurance that the insurance company will pay if your home is destroyed by a covered peril. Most companies require that you take out a policy in which the dwelling coverage are at least 80% of the value of your home. This number is important as it is other coverage that will be included in your policy is often a percentage of this number. If the coverage in other areas is not enough, more coverage can always be purchased for an additional amount. This additional coverage is often referred to as a rider.

What Is Covered Under Your Dwelling Coverage?

Typically anything that is covered under the dwelling section of your homeowners insurance policy is anything that sits on your home's foundation, or that is connected to your home. This section would not include garages, barns, or storage buildings that sit away from the home. These structures would be covered under other structures and they usually have a limitation of a percentage of your dwelling coverage.

For example: If your dwelling is insured at $200,000 and your other structure coverage is limited to 10% of this value, your other structures would only have $20,000 worth of coverage. This is important to note, as it may not be enough to rebuild the structures that it is covering.

Do You Have A Cash Value Or A Replacement Value?

If your policy is reflecting a cash value, then you will only be reimbursed the cash value of your home when it was destroyed. For example, if your home was worth $200,000, you will be reimbursed that amount.

If your policy has replacement value, your policy will pay for the actual cost that are incurred to build your home with like materials. Even if your home was only worth $200,000, but due to the high labor cost in your market, it actually cost $230,000 to rebuild, the insurance company would pay the entire $230,000. 

Here is a good calculator that will give you an idea of how much coverage that you may need.

What You Need To Do

To ensure that your are able to take full advantage of your homeowner's insurance policy, it is important that you have proper documentation in place to show your home prior to your loss. There are several things that you will want to have stored away from your home for this purpose.

  • The original building plans of your home. Even if you did not build the home yourself, there should be plans on file within your Providence. Get a copy.
  • Shoot videos, and take pictures of your home. These pictures will not only help to show the condition of your home, but will also show any upgrades that you may have made over the years.
  • Receipts of any major upgrades or renovation work that you have performed. This is really important especially if the upgrades have resulted in a significant increase in your homes value.

As stated above, keep all of these documents in a safe place away from your home. You may consider storing them in your bank's safety deposit box, or a lock box at the home of a friend or family member. The last thing that you want to have to tell the insurance company is that all of your evidence was destroyed at the same time that your home was.