One of the most important pieces of information you’ll need to know when purchasing property insurance is how much to insure your home for. This amount is often called your dwelling coverage Coverage A, and it is just one of several portions of your property insurance policy.
The Coverage A amount you choose can be a challenge to discern, and we always recommend that you speak directly with an insurance agent to determine the most accurate amount. In the end, the Coverage A amount you choose will be directly related to the replacement cost of your home — not to be confused with the market value of your home.
Are you confused yet?
We understand. Property insurance can be extremely confusing!
So, let’s break down each of these terms and their definitions.
Coverage A (Dwelling Coverage): Within your property insurance policy, you’ll have a lot of information about various types of coverage. Coverage A is the type of coverage that would give you money to help repair and rebuild your home’s physical structure in the event it was destroyed or severely damaged.
Remember that this type of payout would only be legitimate if a covered hazard caused the damage. In Duluth, for example, thunderstorms and hail storms are likely to occur at various times throughout the year. Therefore, these hazards would generally be covered hazards on most home insurance policies.
Replacement Cost: The replacement cost of your property is an amount that is used often to determine how much Coverage A you want for your insurance policy. The replacement cost of a property is essentially the full monetary amount that it would take to fully replace your property, restoring it to its original utility and state.
Remember that this would include both labor and the cost of materials, based on current market prices. Replacement cost does not, however, include the cost of your lot, for example. This is simply because, if we are discussing repairs and replacement after a thunderstorm, for example, your actual lot or land would not have been destroyed in that scenario.
Market Price: Market price is often confused with replacement costs. While the market price is an important amount to know (especially if you want to sell your home), it’s much different than replacement cost. The market price of a given property is essentially its market worth right now. It is how much a property would sell for in its fair sale between a willing seller and a willing buyer today.
How to Use Replacement Cost and Market Value to Determine Coverage A
It may seem that determining Coverage A for your property insurance policy is as easy as copying the replacement cost of your home. Unfortunately, this is not the case.
There are several different things you’ll need to take into consideration when Coverage A.
- Often, the Coverage A amount you end up choosing will be more than the cost you paid for your home. This can happen if you purchased your home a long time ago, and material and labor costs have gone up. It can also happen simply because the absolute new construction of a home is generally more expensive than purchasing an already-built home.
- In rare cases, you may choose a Coverage A amount that is less than the cost you paid for your home. This is generally the case when the value of your home’s location has gone down drastically since you bought your house. It can also be because you won’t be factoring in the lot price (land price) of your home when choosing your Coverage A amount.
Need Help Choosing Coverage A?
Our qualified and experienced agents at Great Lakes Insurance can assist you in coming up with an adequate and safe amount of Coverage A property insurance. We have offices in Duluth and Cloquet, MN. Stop in or call today to learn about your options.