How Do I know My Dwelling Amount is Adequate?

Calculating the dwelling limit on your home has become a very confusing question in today’s market place. Before the downturn houses would easily sell for more than the cost to rebuild, so if an error was made it most likely would have been to over insure the dwelling. However, these days the amount a person could sell their house for may indeed be less than the cost to rebuild the structure. Your insurance is there to reconstruct the home on the same spot as before, so you need to know the reconstruction cost not the market value.

Market value is the amount you paid for your house or the amount you could sell your house for on the open market. Replacement cost is the amount it would take to purchase all the materials such as wood, cement, roofing, fixtures and have the structure rebuilt on the same spot. Replacement cost does not take into account the value of the land the home is built upon because that will not be replaced. This can make a big difference between the two types of valuations. You could have the same exact home built on a beautiful ocean view lot, and the same home built in the city. These two homes might have the same replacement cost, but the home with the ocean view would have a higher market value.

Example:

For insurance purposes your homes dwelling coverage needs to be insurance for 100% of the cost to reconstruct the dwelling. This way in the event of a total loss you would have enough coverage to rebuild the entire structure. Make sure you explain your home in detail to your agent or broker. They need to know the square footage, number of bedrooms, and bathrooms, what type of counter tops and flooring whether there is a fire place or French doors and how many. These are the details that will allow a proper replacement cost valuation, and lead to a proper dwelling limit of insurance on your home. Remember after a claim occurs it is too late to change your limit.