Dwelling Insurance: What to Know

Homeowners dwelling insurance: what it is and how it works

One of the most important parts of a homeowners insurance policy is dwelling coverage. Also known as Coverage A, this portion of your policy covers the main structure of a home as well as any attached structures.

In this article, we’ll explore the ins and outs of the dwelling portion of your home insurance policy and also find out how it differs from a separate policy type known as a dwelling policy.

Dwelling insurance — table of contents

1. How does dwelling insurance work?
2. What does dwelling insurance cover?
3. How much dwelling coverage do I need? 
4. Do I need dwelling coverage for a condo?
5. What is extended dwelling coverage?
6. Dwelling policies: definitions and details

 

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How does dwelling insurance work? 

Dwelling coverage is the portion of your home insurance policy that covers your primary dwelling up to your coverage limits. The limit of your policy is the uppermost dollar amount that your insurance company will pay out for a claim. Most insurance companies offer limits at replacement cost value, meaning that it does not factor in depreciation and will usually pay the full cost of replacement. 

If you have a dwelling coverage limit of $200,000, for instance, this is the total amount that your home insurance company would pay to rebuild your home and any attached structures.

 

Other parts of a standard homeowners insurance policy

To get a better sense of where dwelling insurance fits into your overall homeowners policy, it’s important to know the specific coverages that your home policy contains. Most homeowners policies are broken down into six specific coverage types: 

• Coverage A: Dwelling 
• Coverage B: Other structures
• Coverage C: Personal property
• Coverage D: Loss of use
• Coverage E: Personal liability
• Coverage F: Medical payments to others

 

What does dwelling insurance cover? 

Along with your home, dwelling coverage also applies to attached structures. For instance, if you have an attached garage, it too is covered, as is an attached fence. Detached garages or other stand-alone buildings, however, are covered as a part of your other structures coverage. The specific perils that your dwelling insurance covers are based on the homeowners policy type that you choose. One of the more common homeowners policies in the United States is what’s known as an HO-3 policy. It is what’s known as an open peril policy, meaning that it covers against most types of damages unless they are specifically excluded on your homeowners policy.

 

Commonly excluded perils include:

1. Freezing pipes and systems in vacant dwellings
2. Damage to foundations or pavements from ice and water weight
3. Theft from a dwelling under construction
4. Vandalism to vacant dwellings
5. Latent defects, corrosion, industrial smoke, pollution
6. Settling, wear-and-tear
7. Pets, other animals and pests
8. Weather conditions that aggravate other excluded causes of loss
9. Government and association actions
10. Defective construction, design and maintenance

Other policy types, such as an HO-2 or HO-8, may only cover specifically listed perils. For the most part, these perils include: 

1. Lightning or fire
2. Hail or windstorm
3. Damage caused by aircraft
4. Explosions
5. Riots or civil disturbances
6. Smoke damage
7. Damage caused by vehicles
8. Theft
9. Vandalism
10. Falling objects
11. Volcanic eruption
12. Damage from the weight of snow, ice, or sleet
13. Water damage from plumbing, heating, or air conditioning overflow
14. Water heater cracking, tearing, and burning
15. Damage from electrical current
16. Pipe freezing

It’s also important to note that insurers rarely cover damage related to floods or earthquakes. If you live in an area prone to either, you’ll need to look into flood insurance or earthquake coverage. 

Looking for flood coverage? Get a quote from Neptune Flood Insurance.

 

How much dwelling coverage do I need? 

One of the biggest factors in determining how much coverage you need is your home’s value. However, there are a number of other factors in play that could influence your home’s coverage limit. It’s likely that your insurance company will have its own calculation and will suggest a coverage level for your dwelling. Some may base this limit on your mortgage, but this isn’t always enough to fully replace your home. For this reason, it’s important to be informed so that you can get the appropriate amount of coverage for your needs.

Dwelling coverage limits are often calculated using the square footage of your house as well as local construction costs. However, your home can have unique features that can affect how much it costs as well, including some of the following:

• Style of home
• Wall construction — frame, masonry or veneer
• Special architectural features
• Roof materials
• Number of rooms
• Whether the house — or a part of it — was heavily customized
• Improvements or additions, such as a second bathroom or other value-increasing additions

 

How can I increase coverage for other structures? 

Other structures can also impact the amount you choose for your dwelling coverage. Other structures coverage is usually only a small percentage of your overall dwelling insurance, usually 10%. This means that, for a home with a $200,000 dwelling limit, all other structures on your property would only be covered up to $20,000. If you have a detached garage or guest house that would cost a significant amount of money to rebuild, you may want to increase your primary dwelling coverage to ensure they are properly covered.

 

What about market value?

Market value is, quite simply, the amount that your home could fetch if put up for sale. However, this is not necessarily the amount that it costs to replace your home. In most cases, the market value of your home could be considerably higher than the cost of replacement. This is especially true if you live in a desirable part of town or near good schools. Therefore, your replacement cost will likely differ greatly from the amount for which your home could sell. Remember that your land is not often factored into the overall rebuild cost.

 

Cost of dwelling coverage

The cost of your coverage is determined by a number of factors, including personal factors such as your credit history and age as well as non-personal factors such as the age of your home and ZIP code. Below, you’ll find an average annual cost for home coverage with the following dwelling policy limits. Learn more about our rate methodology or check out the average cost of home insurance in 2022.

Dwelling Coverage Limit	Average Annual Premium
100K	$1,159
200K	$1,680
300K	$2,263
400K	$2,863
500K	$3,491
600K	$4,110

Do I need dwelling coverage for a condo? 

Due to the nature of most condominiums, insurance works a bit differently. In general, your condo policy will include coverage for damage to the interior of your home. It’s likely that your condo association will have a policy that covers the exterior of your building, as well as for shared spaces such as stairwells or walkways. The type of policy that they carry will affect what’s covered in your home:

• All in: If your condo association has a master policy with an “all-in” option, it may cover items that are built into your unit, including things like appliances, lighting fixtures, wiring and plumbing.
• Bare walls: If your condo association has a “bare walls” policy, this will only cover the structure of the condo and common areas things that are collectively owned. Things like plumbing fixtures or appliances would not be covered, meaning that you would need to increase your dwelling coverage.

 

What is extended dwelling coverage? 

The cost to rebuild your home can increase over time. Inflation can drive up the costs of building materials and labor costs. Also, certain events — natural disasters, such as hurricanes, tornadoes or wildfires — can drive up the costs of materials due to demand. As such, your current level of coverage may not be enough to fully cover the cost of rebuilding your home.

Many homeowners policies offer what’s known as guaranteed replacement coverage. Essentially, this coverage will increase your dwelling coverage beyond your current limits in order to help cover any additional costs that come about during rebuilding. This type of coverage is a good idea for homeowners who plan to stay in their homes for a long time, especially if their home requires more expensive building materials or has special architectural features.

 

 

Dwelling policies: definitions and details

Sometimes a property doesn’t need a full homeowners insurance policy. A hunting cabin, for example, might require different coverage than your primary home. Similarly, a beachfront vacation home or a rental property might have its own insurance needs. In these instances, the best coverage option could be a dwelling policy, especially if the owner does not reside at the covered property. 

A dwelling policy offers relatively flexible coverage. Dwelling insurance allows you to pick and choose the various coverages to apply to your property. A standard dwelling policy only covers the dwelling itself, with other coverages as optional add-ons. Liability coverage, for instance, doesn't come standard but can be added via an endorsement. Have a look at the information below to find out more about dwelling policies and whether or not they provide the coverage you need.

 

Dwelling policy — table of contents:

1. Dwelling policy vs. homeowners policy
2. What kinds of buildings are eligible for a dwelling policy?
3. Dwelling policy coverages
4. What are the different types of dwelling policies?
5. Endorsements to a dwelling policy
6. What does a dwelling policy not cover?
7. Dwelling insurance coverage: what to consider

 

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How is a dwelling policy different from a homeowners policy? 

A dwelling policy is entirely different from standard homeowners insurance. It is often used to cover a house or dwelling not occupied by its owner. Dwelling policies don’t go as far to cover you or your property as do typical homeowners policies, which have greater levels of built-in coverage. Dwelling insurance policies are typically designed for those who own properties other than where they live. Dwelling insurance may also be a good option for a landlord who owns rental properties. 

Dwelling policies may cover properties considered too risky for standard homeowners policies, which is one of the reasons they typically don't provide robust coverage. This form of coverage is not to be confused with the dwelling coverage that comes with a homeowners policy. The “dwelling” in a homeowners policy refers to the actual house or primary structure in which the owner lives. 

 

What kinds of buildings are eligible for a dwelling policy? 

The following structures are those most commonly insured via dwelling policy: 

• Vacation homes
• Rental properties
• Older homes
• Certain mobile homes that are permanently located
• Dwellings currently under construction

 

Dwelling policy coverages

Many different coverages are available as part of a dwelling policy. While levels of coverage differ depending on the level of policy, many of these coverages must be added to the standard coverage:

• Coverage A (Dwelling): Covers the main dwelling, including attached garages or carports.
• Coverage B (Other Structures): Covers detached structures on the property.
• Coverage C (Personal Property): Covers personal belongings. If the covered dwelling is used as a rental, the tenant’s property is not covered.
• Coverage D (Fair Rental Value): Covers rental properties, ensuring a property owner receives compensation if a rental property is deemed unfit for normal use. 
• Coverage E (Additional Living Expenses): Covers the cost of living expenses should your property become uninhabitable due to a covered loss. This coverage is not standard on the basic form (DP-1) but can be added as an endorsement. 

Personal liability supplements that can be added:

• Coverage L (Personal Liability): Similar to the liability coverage that comes with homeowners policies. This covers damages caused by bodily injury or property damage.
• Coverage M (Medical Payments): Covers the medical expenses of anyone injured at the covered dwelling, harmed by the insured party or injured by an animal cared for by the insured. 

 

What are the different types of dwelling policies?

Like homeowners insurance policies, dwelling policies come in different tiers of coverage. These include DP-1 (basic), DP-2 (broad) and DP-3 (special), with DP-3 providing the most coverage. 

 

What does a DP-1 policy cover?

DP-1 is the term for a dwelling policy tier that covers your home and personal property against named perils. It covers the dwelling, other structures and personal property at actual cash value, which factors in depreciation when considering your claim payout. This means your payout will be less than you originally paid for the covered items.

Insurance Terminology	Property Covered Against	Contents Covered Against
DP 1 - Basic Form	Named perils	Named perils

A dwelling (DP-1) insurance policy is often called a named peril policy. A peril is a cause of loss, such as fire or wind. Each covered peril is specified in the policy documents. Below are the named perils covered by a DP-1 policy:

• Lightning 
• Fire (fireplaces excluded)
• Internal explosions

Extended coverage — coverage for the following perils can be obtained at additional cost:

• Wind
• Civil Unrest
• Riot
• Hail
• Aircraft
• Vehicle
• Volcano
• Smoke*
• Explosion**

You can add vandalism and malicious mischief, which are often helpful for properties that sit vacant for many months of the year. It’s important to note, however, that this coverage doesn’t apply to any building that has been vacant for 60 consecutive days or more. This is different than unoccupied, with vacant being defined as “completely empty” of people and property.

Learn more about vacant home insurance.

*Smoke damage caused by fireplaces is not covered.

**This expands from “internal explosion” to cover external explosions as well. 

 

What does a DP-2 policy cover?

A DP-2, though more robust than DP-1, is still fairly basic. It does, however, cover the dwelling and other structures at replacement cost, which reimburses you for the full amount required to replace an item at market value. Personal property coverage remains at actual cash value.

Insurance Terminology	Property Covered Against	Contents Covered Against
DP 2 - Broad Form	Named perils	Named perils

DP-2 covers all of the basic perils (including DP-1 extended coverage, vandalism and malicious mischief).

It also covers the following perils:

• Burglary damage
• Collapse
• Tearing asunder
• Damage from ice and snow
• Glass breakage
• Falling objects
• Frozen objects
• Accidental water discharge
• Electrical current

 

What does a DP-3 policy cover?

A DP-3 policy provides the most coverage of any dwelling policy. It is an open peril policy as far as the insured dwelling and other structures go. They will be covered against all perils except those explicitly listed in the policy. Your personal belongings are covered on a named peril basis and are covered against the same perils listed in the DP-2 policy. DP-3 insures the dwelling and other structures at replacement cost while personal belongings are covered at actual cash value.

Insurance Terminology	Property Covered Against	Contents Covered Against
DP 3 - Special Form	Open perils	Named perils

 

Dwelling policy endorsements

One of the attractive features of dwelling insurance policies is that they allow you to cherry-pick the types of coverage that you need. Along with the coverages listed above, here are some of the other endorsements that can be added:

• Dwelling under construction: If your dwelling is still being built, you can add this endorsement to protect it. Policy limits increase as the construction progresses. 
• Mobile home: Coverage for a mobile home can be added to a dwelling policy. However, this endorsement stipulates that the mobile home be permanently located on a secure foundation. 
• Automatic increase in insurance: This endorsement allows you to guard against inflation by increasing the amount of insurance coverage in annual increments. 
• Theft coverage: This coverage doesn’t come standard in any dwelling policy, but can be added through endorsement. There are two different endorsements available, broad theft coverage which is used for the dwellings that an owner occupies, and limited theft coverage which is used for dwellings in which the owner does not live. Limits may apply to very valuable personal property. Find below some standard limits.
  
  

Sub-limit	Property	Limitations
$200	Money, gold, coins
$1,500	Jewelry, watches, furs	Theft-only
$1,500	Watercraft, trailers	Theft-only
$2,500	Firearms
$2,500	Silverware
$2,500	Business property	On-premises
$500	Business property	Off-premises
Varies	Electronics

 

What does a dwelling policy not cover?

The reach of your dwelling policy depends on the level of coverage you choose. If you choose to go with a DP-1 policy, for instance, your dwelling and personal belongings are left vulnerable to a number of uncovered perils. DP-2 and DP-3 policies add more expansive protections, though important coverages — such as liability and medical payments — would need to be added as endorsements to these policies. 

However, certain perils are never covered by a standard homeowners insurance policy.

Common exclusions include: 

• Flood
• Earthquake
• Nuclear accidents
• War
• Government acts
• Intentional loss

 

Dwelling insurance coverage: what to consider

A dwelling policy can be a great coverage option for a property other than your primary residence. If you own a rental unit, a dwelling policy with added liability coverage could be ideal. 

There are other circumstances where dwelling policies may be valuable. If, for instance, a homeowner has poor credit or a long history of claims, it’s possible that homeowners policies could be harder to come by. Similarly, if the dwelling is in very poor shape, a dwelling policy could be easier to obtain. However, if a homeowners policy is a possible option, it can provide for more peace of mind and more expansive coverage.