Set your dwelling limit from the cost to rebuild, understand the other parts of a homeowners policy, and avoid common underinsurance mistakes.
Your dwelling coverage (Coverage A) should cover what it would cost to rebuild your home from the ground up at today’s local construction prices. It is not the price you paid, the current market value, or your mortgage balance.
Market value includes land, which isn’t destroyed in a fire, and moves with the housing market. Rebuilding cost depends on size, materials, labor and code requirements.
Multiply your finished square footage by a local rebuilding cost per square foot, adjust for quality, and add garages, finished basements and decks. Allow extra for debris removal and code upgrades.
For a 2,200 sq ft standard home at $200 per square foot with $25,000 of extras and a 10% allowance, that comes to about $511,500.
Other structures (detached garage, fences) is usually 10% of the dwelling limit. Personal property is usually 50–70%. Loss of use, which pays for living elsewhere during repairs, is often 20–30%. Personal liability is separate, commonly $300,000 or more.
Flood and earthquake damage are usually excluded and need separate coverage.
Ask about extended or guaranteed replacement cost, which pays above your limit if rebuilding costs more than expected, and about ordinance or law coverage for code upgrades. Review the dwelling limit every renewal and after renovations.