Dwelling coverage is one of the most important protections found within homeowner's insurance policies, for this is the coverage that actually protects your house in the event of damage. When purchasing a home insurance policy, you can choose from several different limits for this coverage. Here are the various limit options and when you might choose each one.
Limit of $0 (No Coverage)
If you own your home outright, you can technically skip purchasing dwelling coverage and effectively have a limit of $0 for the protection. There are no federal or state laws that actually require you to insure your home against damage.
While this is an option if you own your house in full, skipping coverage and choosing a $0 limit is rarely advisable. You won't have any protection if something bad happens to your house, and rebuilding a house is a costly endeavor. Few people could afford to rebuild their house without incurring a significant financial setback, if they could afford the entire undertaking at all.
Limit Equal to Mortgage Balance
If you have a mortgage on your home, you're required by the terms of your mortgage to carry dwelling coverage that's at least equal to the balance on your mortgage. This requirement doesn't come from a federal or state law, but it's included within the conditions and requirements of mortgages.
For example, if you have an $80,000 mortgage on a $100,000 house, you have to carry dwelling coverage with a minimum limit of $80,000. This minimum requirement will decrease as you pay off your mortgage.
Carrying dwelling coverage that's only equal to your mortgage balance will ensure that the bank can recoup their investment if something happens to your house. It leaves you with no protection, though, and your equity in the house is left at risk.
Limit Equal to House's Value
Many people choose a dwelling limit that's equal to their home's value. If your home's exact value is unknown, a real estate agent can provide an estimate by looking at comparable homes in your area.
Insuring your home for its value ensures that both your interest and the bank's interest in the home is protected. Should the home be destroyed, everyone with equity in the home can get paid for their financial loss.
Limit Equal to Rebuilding Cost
Some people choose to purchase dwelling coverage that's equal to the cost of rebuilding their home. This might make sense if the cost of rebuilding your home would be more than the house is worth.
For more information, contact a homeowner's insurance provider.
Share21 October 2020
I still remember the first time I had to chose an insurance policy; I was 17 years old and had just saved up enough money to afford my very first car. I was so excited to begin driving, but overwhelmed with all of the different auto insurance options. My father helped me chose a full-coverage policy that would cover the cost of my car if it were to become damaged in an accident. When I inevitably caused a small fender-bender as a new driver, my insurance company paid for my car repairs, so it sure was the best policy for me! Now that I am older and have learned a lot about home insurance and other types of insurance, I thought I would make a blog to help others who need insurance advice, like what my dad gave me. I hope I can help you make wise insurance decisions!