No Dumb Questions
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No Dumb Questions
What is dwelling coverage? | S2 Episode 2 | No Dumb Questions
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When it comes to home insurance, your dwelling coverage is the most important and largest element of your policy. Join Sara and Julia as they go over:
- What dwelling coverage even means
- How much you actually need
- Ways to save on your dwelling coverage
Knowing how your home insurance policy works is the key to saving. Enjoy!
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Disclaimer: This podcast is produced by Insurify and is intended for educational purposes only. We are not licensed insurance agents, and we do not constitute personalized financial or legal advice. Personal situations vary, and you should always consult a licensed professional before making financial decisions.
Welcome back to NoDem Questions, the podcast where we give you straight talk on covered claims and savings. And I'm Sarah. And I'm Julia. And today's topic, dwelling coverage. Yes, an incredibly important coverage in your home insurance that I bet you might not actually understand. It's probably the biggest part of your home insurance. It's very important.
SPEAKER_02Yes, I'd say so. So the main question we're going to talk about today is what is dwelling coverage? And how much dwelling coverage do I need? Yeah, and how can I save? How can you save? Exactly. All right, let's do it. So in a nutshell, dwelling coverage protects the physical structure of your home. So it pays to repair or rebuild after damage from a covered peril damages the structure of your home. So that could mean something like a fire, vandalism, or some other peril. But say a fire breaks out in your kitchen, burns down some walls, and causes smoke damage. This is the coverage that would cover that damage.
SPEAKER_01Exactly. So how much dwelling coverage you need really depends on your personal home. Ideally, you would have enough to fully rebuild your home. Of course, that can be very expensive. So in general, you need at least what your mortgage lender has. And then a good rule of thumb is the 80-20 rule. So you need to have enough coverage for 80% of the replacement cost of your home. Otherwise, your claim might not be fully paid out by your insurer. So you can find this number by multiplying your square footage by local rebuilding costs, which you can call like local builders to get. And we'll go more into this soon.
SPEAKER_02Yes, for sure. Actually, let's deep dive into what all this means. Let's do it. Yeah.
SPEAKER_01Okay. So what is a dwelling? What a great question to start. Um it's the physical structure of your home. So it's the walls, the roof, the floors. It's built-in appliances attached to garage and your foundation. Yes.
SPEAKER_02So dwelling coverage is part of your homeowner's insurance. Um, it covers damage to, like you just said, the structure of your home, your residence. And it's also called coverage A and part one of your policy in case you ever see that.
SPEAKER_01Yes. So it covers fire and smoke, wind and hail, lightning, falling objects, explosions, some water damage.
SPEAKER_02Yes. And a little bit like we talked about in episode one, um, it does not cover flood damage, earthquake damage, or damage from wear and tear or neglect.
SPEAKER_01Exactly. So, like a quick example of this would be like a tree falls on your roof, creates a big hole in your roof. That's structural damage to your roof, that would be covered under your dwelling policy.
SPEAKER_02Yes, exactly. But belongings inside your home, that's a different coverage. That would be covered under personal property coverage or coverage. So, how much dwelling coverage do you need? Yeah. Um, like you've been saying, ideally, you would want enough coverage to rebuild your home structure if it were damaged from a covered apparel. That does not mean the market value of your home, and that does not mean the purchase price of your home, and that is not the cost of the land on which your home is built. Yes. It's about the rebuild cost. So labor, materials, local construction costs that all would add up to the cost to rebuild your home completely.
SPEAKER_01Exactly. So, like I said, the rule of thumb is the 80-20 rule. Yes. So you need to have enough coverage for 80% of the total replacement cost of your home. Otherwise, your insurer might not fully pay out that claim. Um, and like we said, your mortgage lender will require you to carry a minimum amount of coverage. It's good to have more than that. So, for example, if your home is worth $400,000 at current prices, you need to buy at least $320,000 of coverage if you want your insurer to fully cover your claim. Ideally, you would get $400,000 in coverage because rebuild costs can increase fast. So if you can afford more, get more.
SPEAKER_02Yes, so true. And this matters because too little coverage or having too little coverage means that you'll have to pay more out of pocket and you may not be able to afford all of the repairs, which could mean not being able to afford to rebuild your home, which is kind of scary. And like you said, rebuilding costs change and they can change fast. We've seen some record inflation in recent years, for example. So it's really worth evaluating your coverage at every policy renewal.
SPEAKER_01Exactly. And dwelling coverage, like we've mentioned, is the core coverage in homeowners insurance. And you'll see it as like $300,000 in dwelling coverage or $300,000 in home insurance when we are writing about it.
SPEAKER_02Yeah, insert number here. Right, yeah. Um, but yes, that's often standard. Um, so speaking of standard, there are a number of different deductibles you can choose for your home insurance policy. Usually you'll see a thousand, but I believe you can choose anywhere from you know 250, 500, 1,000, 1,500, 2,000, et cetera, you can choose what works for you. And some coverages under home insurance policy in high-risk areas may have a separate deductible. So that means that basically if a specific peril causes damage, that damage would be a separate deductible from the deductible you have for the rest of your home insurance policy. For example, in Florida, that might be wind damage. In California, that might be wildfire damage. In Texas, that might be hail damage. You might see different things. Exactly.
SPEAKER_01So how dwelling coverage pays out is really important. So first it depends on the type of coverage, but it will generally pay up to your policy limits. So you're gonna want to submit a claim and evidence, and then your insurance ingester will come out and assess what actually the damage is, what it looks like. And then you're gonna get estimates and you're gonna review the settlement offer that your insurer provides for you. And then you can accept the settlement and then you get to go do your repairs that you need to do.
SPEAKER_02Exactly. That was perfect. Um, let's rock into the frequently asked question. Let's do it. Amazing.
SPEAKER_01Okay. So, Sarah, how do I calculate my dwelling coverage? So you want to do your square footage times your rebuilding costs per square foot. Of course. That's your basic dwelling coverage. So you want to call like a local building association or talk to an insurance agent to get your local rebuilding costs. And then you also want to consider custom features and inflation. Like you mentioned, inflation has been really bad these past couple of years, which is the increasing costs in general. So it's important to consider that when you're getting your dwelling coverage.
SPEAKER_02Awesome. So true. Um, okay. How much dwelling coverage do I need for a condo?
SPEAKER_01So you need enough to rebuild the interior of your unit. Um, you're gonna want to review your HOA bylines, though, because the HOA master policy will cover a bunch of other things.
SPEAKER_02Yes, exactly. Um, that's something else we can get into more later. So, does dwelling coverage include my roof?
SPEAKER_01So it covers against covered perils like the wind, the hail, the tree falling on your roof. So true. Um, but it doesn't cover wear and tear. So if you have like moss on your roof that's causing damage, that's not covered.
SPEAKER_02Yes, very important to note. Um, okay, so can I reduce my dwelling coverage to save money?
SPEAKER_01No. This really isn't recommended because if you reduce past that 80%, your claims aren't gonna be fully paid out. Right. And you need to carry as much as your mortgage lender requires you to have. And in general, it can just leave you vulnerable to huge financial losses.
SPEAKER_02Yeah, yeah, true. Okay. And last but not least, um, what is extended dwelling coverage?
SPEAKER_01So this is technically called extended replacement cost coverage. It's extra protection if your rebuild costs exceed your limits. So it's usually like a certain percentage over your dwelling coverage limit. And it's an add-on that you can put on your policy.
SPEAKER_02Amazing. Okay, I think it's time to get into more ways you can save. Yes.
SPEAKER_01So unfortunately, saving on your dwelling coverage isn't as easy as it is to save on your car insurance because your mortgage lender requires a minimum amount and reducing it can put you at a huge financial risk.
SPEAKER_02Yes. However, you can still compare quotes, and prices will vary between insures and coverage estimates will also vary. So it's always smart, like we've said many times to compare quotes to just figure out the difference.
SPEAKER_01Exactly. And increase your deductible to an affordable amount, and then look into discounts for bundling or adding safety features or like green home features, stuff like that.
SPEAKER_02Or resilience updates. If you repair your windows, say in a storm-prone area, you could have lower home insurance sites.
SPEAKER_01Wildfire prevention stuff. Yeah. Yeah. Okay. So overall, your dwelling coverage protects your home structure and it's based on the rebuild costs, not the market value of your home. Yes.
SPEAKER_02And this coverage is really doing most of the heavy lifting on your policy. Um, in your gym routine, it's your deadlift. Yeah. Your squat, your bench press. Um, and it's the most important thing when protecting your home. Exactly.
SPEAKER_01Thank you everyone for tuning in to this episode of No Dem Questions. We'll have more amazing insider tips coming to you soon. You can compare quotes by clicking the link below. And until next time, stay prepared and protect your wallet.
SPEAKER_00You're listening to No Dem Questions, an Insurify podcast. This content does not constitute personalized financial or legal advice. This podcast is written, produced, recorded, and developed by Sarah Getman, Julia Tallietsen, Riley Hines, Sydney Harrell, and edited by Angelica Coleman. Compare insurance quotes by clicking the link below.