If something happened to your house tomorrow, could you rebuild it or fix it? A large part of avoiding the expense of yourself depends on the residence coverage section of your homeowner’s insurance policy. Learn more about what residential insurance covers, what it doesn’t, and how to make sure you have enough coverage to protect your most expensive assets.
- Residential insurance covers the main structure of your home and all attached structures, such as the garage.
- Replacement cost coverage pays for the cost of rebuilding a home of the same type and quality at current prices.
- A local building contractor can produce a detailed replacement cost estimate to ensure you have sufficient coverage.
What is Residence in Insurance?
Residence, in the context of homeowners insurance, refers to the structure of your home and other structures attached to it, such as a garage, chimney, or deck. A dwelling includes permanently installed fixtures such as heating and air conditioning systems, electrical wiring, floors, countertops, ceilings, cabinets, dressers, and plumbing.
What Does Residential Insurance Cover?
Residential insurance covers all parts of the residence if damaged due to hazards or causes covered. It is a major component of a homeowner’s insurance policy and helps you rebuild or repair your home and attached structures such as decks. Insurers usually cover damages from:
- Falling object
- Weight of ice or snow
- Frozen pipe
- Accidental overflow of water from HVAC system or plumbing
For example, if your home is damaged by a forest fire, you will contact your insurance company to file a residential coverage claim. Once approved, you will pay your deductible, then receive funds to repair or replace the damaged portion of your home along with any installed structures that are also affected.
Residence Coverage Limit
While many causes are covered under residence insurance, some common exceptions include floods, earthquakes, back-up sewers, and damage caused by lack of maintenance. You may be able to purchase separate policy support or additional policies to cover flood, earthquake, and sewer reserve damage.
Housing coverage alone is often not sufficient to fully recover after a total loss. If your property includes another structure, such as a shed, shed, or guesthouse, you will need additional structural protection to compensate for the damage.
Since occupancy coverage does not cover items within the home, you will need a personal property policy to cover items such as furniture, clothing, and jewelry. And as a homeowner, you may want a personal liability policy to ensure your home is not at risk if you are liable for damage to other people or their property.
Most basic homeowners insurance policies combine all of these types of coverage together. When you request a quote, the agent will ask you questions to determine your coverage needs.
How Much Coverage Do I Need?
Homeowners insurance, including residence coverage, is not mandated by state law. However, if you have a mortgage on your home, your lender will require you to carry the minimum amount of homeowner coverage. In most cases, it should be at least equal to your mortgage amount. However, that is often not enough to protect your interests.
When considering the amount of residential coverage you need, it’s a good idea to have enough to cover the costs of labor and materials needed to rebuild your home. If you lose your home, this guarantee will allow you to build a replacement of the same type and quality at current prices without paying for it yourself. Some lenders will require you to carry housing coverage for 80% of your home’s replacement cost, while others mandate 100% coverage.
How to know how much housing coverage you need
The main factors affecting your rebuilding costs are local construction costs in your area and the size of your building. You can contact your local real estate agent or builders association for an estimate of construction costs in your area and calculate the number.
However, other factors also affect the cost of repairing or replacing your home, including:
- home style
- Special features
- Special design
- Roof type
- Type of outer wall
- Number of floors, bedrooms and bathrooms
- New building codes or regulations
- Features that are hard to replace
If you want a special quote for your home, consider hiring a building contractor to produce a detailed replacement cost estimate. While most insurance companies use tools to generate estimates for you, getting an educated second opinion can help ensure you have the coverage you need should the worst happen.
Actual Cash Value vs. Replacement Cost Value
Another factor to consider is how your completion will be calculated. The replacement cost value includes the cost of rebuilding your home at its current price, without accounting for depreciation. However, if your coverage is calculated according to the actual cash value of the house, the insurance company will factor depreciation into your settlement amount. This type of coverage can give you less than you need for an equivalent rebuild, so many experts recommend opting for a replacement cost value.
Fair Market Value vs. Replacement Cost Value
It is also important that the fair market value of your home is not used to determine your coverage amount. Market value shows what buyers would pay for the land, houses and buildings you own in their current state. It also fluctuates based on factors such as local markets, school districts, and distance to restaurants and retail stores. That means the fair market value is often different from the cost of rebuilding. Often it will be too high, which could mean you are paying more for your coverage, but it could also be too little to rebuild.
Don’t Set It and Forget It
Replacement costs change from time to time so it’s important to review your policy annually to make sure your coverage is still meeting your needs. This is especially necessary if you are completing a home improvement project, as those changes can increase your replacement costs.
Some policies include an inflation clause that automatically adjusts your coverage to account for increased construction costs.
Residential Coverage for Condos
Condo insurance works a little differently. These are regulated by the homeowners association (HOA), so the first step to making sure your condo is protected is to check with your HOA. This will carry one of three types of policies:
- Bare wall coverage: The minimum amount of coverage an HOA can choose is “bare walls”, which includes only bare structures, fixtures and properties from collectively owned areas. Individual units are the responsibility of the condo owner, so you will need to purchase occupancy protection for your condo.
- All-inclusive coverage: The all-inclusive policy covers walls, floors and ceilings, as well as the interior of the condo unit, including appliances, cabinets and flooring. This also includes any repairs you make to your unit. With this type of policy, you don’t have to purchase your own residential coverage, although you may still want other coverage, such as for your personal belongings.
- Single entity coverage: A single entity includes all real property in the condominium complex, including fixtures in individual condominiums. However, it doesn’t cover upgrades or personal property, so you may want additional coverage for both.
Occupancy coverage helps protect your home structure from devastating damage. To best prepare for an incident, make sure you have a policy that calculates your settlement using the cost of replacing your home. As time passes, keep an eye on the costs of rebuilding your home and make sure you have sufficient coverage based on inflation and any renovations you complete. Your insurance company will calculate an estimate, but you can confirm it by getting a second opinion from a local building contractor.
Frequently Asked Questions (FAQ)
How much housing coverage do I need for a multifamily home?
The amount of occupancy coverage you need for a multifamily home will depend on the primary policy chosen by your HOA. Check to see how much coverage there is, then you can get the extra coverage you need to fill any gaps. In some cases, you may not need coverage for your own residence, while in other cases, you may need full or partial coverage.
What is meant by expanded occupancy coverage?
Extended residence coverage is the additional amount of residence insurance you can purchase to cover a total loss that exceeds your standard residence coverage. This can be useful in situations where rebuilding costs are very high, such as when widespread forest fires affect many homes and increase labor and material costs. Any costs above your primary cover, up to the limit of your policy, will be covered by your extended residence cover.
How much does residential coverage cost?
According to the most recent data available from the National Association of Insurance Commissioners, a basic homeowners insurance policy (HO-3) costs $1,249 on average. However, it includes residential coverage as well as coverage for other structures, personal property, loss of use, temporary living expenses, and personal liability. Residential-only coverage will cost you a percentage of the total amount and will depend on the amount of coverage you want and need to protect your home structure.