Dwelling coverage and the cost to rebuild your house

The dwelling line on your declarations page, often called Coverage A, is the most the policy pays to repair or rebuild the house after a covered loss. The number that matters for it is the cost to rebuild. The cost to replace your home and contents is one of the factors in your premium, and it's not the same as the home's market value. A house can sell for more or less than it would cost to build again.

Why rebuilding cost and market value differ

Market value includes the land, the location and what buyers will pay this year. Rebuilding cost covers the labor, materials, permits and debris removal for the house itself. Rising labor and materials costs are among the forces pushing premiums up, and when they rise, a dwelling limit set a few years ago can fall behind.

Extended replacement cost

Extended replacement cost pays a set percentage above the dwelling limit when rebuilding costs more than the limit, often 20% or more, depending on the insurer. Guaranteed replacement cost pays whatever it costs to rebuild the house as it was. Your policy and declarations page show whether you have it and how much extra it pays. Ask your insurer or agent if you can't find it.

Keeping the limit current

Review your coverage amounts each year, so the dwelling limit keeps up with the full cost to replace the home and your belongings. Three changes are worth a call to your insurer when they happen:

• An addition or a finished basement. More square feet means more house to rebuild.
• A major remodel. A new kitchen or new bathrooms raise what it costs to put the house back as it was.
• A rise in local building costs. Labor and materials drive the cost to rebuild.

An annotated example

What to do next

Find Coverage A on your declarations page and write it down with the house's square footage. Ask your insurer or agent how the figure was estimated and whether the policy includes extended replacement cost. Keep records of any addition or remodel with the policy, so the next renewal starts from the house you have now.