How Much Dwelling House Insurance Coverage Do You Need?

If something happened to your house tomorrow, could you afford to rebuild or repair it? A big part of avoiding out-of-pocket costs depends on the insurance policy you have purchased, which is your 'Dwelling House' insurance policy. Learn more about what 'Dwelling House' insurance covers, what it does not, and how to make sure you have enough coverage to protect what may be your most expensive asset.

What Is a Dwelling in Insurance?

A dwelling, in the context of?homeowners insurance, refers to the structure of your house and any other structure attached to it, such as a garage, small outside buildings, annexes, etc. This can also include permanently installed fixtures such as heating and air conditioning systems, electrical wiring, flooring, countertops, ceilings, cabinets, vanities, and plumbing. You may also want to include boundary wall gates and fences, fixed glass, and sanitary ware. In addition to that, its contents include furniture and electrical items, security cameras, and personal effects, which include clothing. High-valued items such as jewellery, antiques, or collectable items need to be specifically declared to the insurance company.

What does dwelling insurance cover?

‘'Dwelling House' insurance provides coverage for all parts of a dwelling that are damaged due to a covered peril or cause. It is the primary component of homeowners insurance policies and helps homeowners rebuild or repair their homes.

• Fire
• Lightning
• Strikes, Riots and Civil Commotions
• Terrorism
• Malicious Damages
• Explosion,
• Impact damages, including damages caused by your vehicles
• Aircraft and other aerial devices or articles dropped therefrom
• Cyclone Storm and Tempest
• Flood
• Earthquake with Fire and shock
• Tsunamis, tide waves, volcanic eruptions, tornadoes, hurricanes, typhoons, and windstorms are caused by atmospheric disturbances designated by the meteorological department.
• Bursting or overflowing of water tanks, Apparatus, or pipes
• Burglary, including theft,
• Electrical Extra
• Accidental and unforeseen property damage.

What is not covered in dwelling house insurance coverage?

While most causes are covered under 'Dwelling House' insurance, some common exceptions are damage caused by war and affiliated causes, including radiation and nuclear risks, bushfires, and clearing of land by fire.

Special Note: Most insurance companies have their own homeowner’s insurance policies bundled with home contents, including other risks associated with owning a home such as your liabilities to your guests, visitors, neighbours and domestic workers. You must carefully read through the terms and conditions and see if the policy and its limits fit your requirements.

How Much Dwelling Coverage Do You Need?

Dwelling house insurance is not mandatory by law. However, if you have a mortgage on your home, your bank or finance company will require you to carry a?minimum amount of homeowner coverage as per their bank lending guidelines. However, that is often not enough to fully protect your interests. When considering the amount of 'Dwelling House' coverage you need, it is helpful to have enough to cover the costs of the labour and materials needed to rebuild your home. If you lose your house, this coverage will allow you to build a replacement of the same kind and quality at current prices without paying out of pocket.

How To Figure Out How Much Dwelling Coverage You Need

The main factors that affect your rebuilding costs are the local construction costs in your area and the square footage of your structure. You can contact a local building contractor or property valuer for approximate construction costs in your area and run the numbers.

However, other factors also influence the cost of repairing or replacing your home, including:

• House style
• Specific features
• Custom design
• Materials
• Type of roof
• Types of exterior walls
• Number of floors, bedrooms, and bathrooms
• New building codes or bylaws
• Hard-to-replace features
• Inflation

If you want a custom quote specific to your home, consider hiring a building contractor or professional valuer to produce a detailed replacement cost estimate. Obtaining an educated second opinion can help ensure you have the coverage you need if the worst happens.

What are the differences between the two main ways of settling property claims: indemnity basis (present-day value) and reinstatement basis?

Another factor to consider is how your settlement will be settled.?Insurance companies have two main ways of settling property claims (which most laypeople would not know)

1.????? Indemnity Basis (Present Day Value)

2.????? Reinstatement Basis

If a claim is settled on an indemnity basis, a policy puts you back in the same financial position you were in before the loss occurred, so you are no better or worse off than you were immediately before the loss. The settlement is based on how much you would pay for the item second-hand or the replacement cost of the item less an allowance (depreciation) for age and use. Indemnity value may also be referred to as market value or present-day value. A policy issued on a reinstatement basis' is when an insurance company covers the cost of replacing or reinstating on the same site property of the same kind or type, but not superior or more extensive than the insured property, so it is as new as possible, which therefore does not factor in depreciation. (Provided that you have insured for the correct value as explained above.)

'Dwelling Houses' are insured on a reinstatement basis unless it is an old house, and it is not possible to rebuild it in the same way.

Do Not Set It and Forget Your Sum Insured

Most people forget this important aspect of their insurance policies and suffer the consequences at the time of a claim. Reinstatement costs change over time, so it is important to review your policy each year to ensure your coverage still meets your needs. This is especially necessary if you complete any home improvement projects or if there is a significant increase in building costs, as these changes will most definitely increase your replacement cost.

Special Note: Insurance policies can include an inflation clause that automatically adjusts your coverage by an agreed-upon percentage to account for increasing construction costs. (Talk to your insurance broker about including it in your 'Dwelling House' insurance.)

The Bottom Line

'Dwelling House' coverage helps protect the structure of your home against devastating damage. To best prepare for an incident, ensure you have a policy that calculates your settlement using your home’s reinstatement cost. As the years go by, track the cost of rebuilding your home and ensure you have enough coverage based on inflation and any renovations you complete.

Don't leave your dwelling house insurance coverage to chance. Reach out to me today for personalised guidance and expert advice tailored to your unique needs.

Whether you're seeking clarity on coverage options, determining the right level of protection, or reviewing your current policy, I am here to assist you every step of the way.

Email me at gavin.sahabandu@iirm-insurance.mv

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