If you’re buying a house, you likely have a good idea of what it’s worth. Between conversations with a realtor, the purchase contract, and the appraisal, there are several pieces of data that help you understand the home’s value.
As part of the purchase process, you are required to get homeowner’s insurance. On the insurance quote, there is an item called dwelling coverage. In most cases, this number is lower than what you believe the home to be valued at—why?
First, let’s define dwelling coverage: dwelling coverage is not correlated to the value of the home. Dwelling coverage is what the insurance carrier has determined it would cost to rebuild your home in the event of a total loss. For example, if the home were to catch fire and burn down to the ground, the dwelling coverage amount is what the insurance company would pay to help rebuild your home to how it was before it caught fire.
Now, let’s define home value: home value is an amount someone may pay for your home structure and the land it sits on. In most cases, unless you own a condo or townhome, home value includes the land.
Why the difference?
As you have probably surmised, the insurance company is not insuring the land, they are only insuring the structure. As a result, the difference between the dwelling coverage and the home value is most often the value of the land the home sits on. So, the dwelling coverage will almost always be different than the home value.
PRO TIP: Here is the real question you should ask: “If my home burnt to the ground, is the dwelling coverage amount enough to rebuild it?”
Do you have enough dwelling coverage? Do you have questions on your homeowner’s insurance policy?
Schedule an appointment with Brandon below. He is a wise Insurance Advisor that would be happy to help: