How to Calculate Dwelling Coverage

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Homeowner's insurance, which most mortgage lenders will require homeowners to have, pays for replacing a home damaged by natural or man-made disasters. The term "dwelling coverage" refers to the specific amount of money the insurance company will pay out for the loss of the home, not the personal contents inside the home. The most common method used to calculate dwelling coverage is to determine the replacement cost coverage. Unfortunately the replacement cost is often lower than the outstanding mortgage, indicating the dwelling does not have the same value as the original purchase price.

  • Contact your insurance company. They may have a preferred contractor or adjuster who can give an estimate of your home's replacement cost.

  • Determine your home's total square footage, taking note of special features such as crown molding, luxury bathroom fixtures or granite countertops. Contractors will use this information to determine the cost for replacing the home.

  • Compare your contractor's quote with regional statistics for home replacement costs or values. A local builder's group, real estate agent or government agency such as the Department of Housing and Urban Development may be able to provide this information. Getting a second opinion can also verify this information.

  • Negotiate the replacement cost coverage with your insurance company to lower premiums. You may be able to save on your monthly premiums if your insurance company only requires 80 percent coverage.

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  • Photo Credit Don Farrall/Photodisc/Getty Images
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