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Dwelling coverage, listed as Coverage A on your policy, pays to rebuild your home’s structure after a covered loss. Set it too low and you pay part of a rebuild yourself. Set it far too high and you pay premium for a limit the insurer will never spend, because claims settle at actual rebuild cost up to the limit, not above it. The goal is to match the limit to a realistic rebuild figure.
The square footage method
The standard estimate multiplies your home’s living area by the local cost to rebuild per square foot. That per-foot figure varies a lot by region and finish level. A plain tract home in a low-cost market rebuilds for far less per foot than a custom home with high-end finishes in a coastal metro. Your insurer runs this calculation with its own replacement cost estimator, using your home’s age, construction type, roof material, and interior features. Ask for the estimate and read it. Errors creep in easily: a finished basement counted twice, a garage priced as living space, or finishes listed a grade above what you have.
Our guide on how insurers calculate replacement cost shows what goes into these estimators, line by line.
The 80 percent rule and coinsurance
Many policies include a coinsurance condition. If you insure your home for less than 80% of its full replacement cost, the insurer can reduce even a partial claim payout in proportion to how underinsured you were. The 80 percent rule explainer works through an example. Staying at or above 100% of the estimated rebuild cost keeps you clear of this entirely, which is the simplest reason to insure to full value.
What the other coverages take from Coverage A
Several other limits on a standard policy are calculated as percentages of the dwelling limit. Other structures coverage is commonly 10% of Coverage A. Personal property is commonly 50% to 70%. Loss of use is commonly 20% to 30%. Raise the dwelling limit and these limits rise with it, which is part of why premium climbs the way it does in our cost by home value table.
A quick worksheet
Write down your square footage, then multiply by a local rebuild figure from a contractor or your insurer’s estimator. Add features that estimators miss: a deck, a finished basement, custom cabinetry, a masonry fireplace. Subtract nothing for land, since land is never part of the dwelling limit. Compare the result with the Coverage A figure on your declarations page. If the two differ by more than about 10%, call your agent and ask which number is wrong, and why. Repeat the exercise after any renovation, because a $60,000 kitchen remodel that never reaches your insurer also never reaches your coverage.
