A home is one of the most valuable pieces of personal property most people will own. This makes insurance for your home especially important. But choosing the right type of insurance may not be easy. One of the key distinctions a homeowners insurance shopper needs to understand is the difference between homeowners insurance and dwelling insurance.
Homeowners insurance refers to a comprehensive type of insurance that applies to your home and its contents. This includes everything from furniture and clothes to your home's physical structure, your appliances and household decor. Homeowners insurance will pay to replace or repair damage to your property up to your coverage limits.
Dwelling insurance is similar to homeowners insurance, but it only covers your home's physical structure. It omits any coverage for contents, instead providing money to repair or replace your home based on its cost of construction. When included in a comprehensive homeowners insurance policy, dwelling coverage is referred to as Coverage A, while coverage for other structures on your lot fall under Coverage B, the contents of your home fall under Coverage C, and so on.
Both homeowners insurance and dwelling insurance policies have maximum limits, which you choose when you purchase a policy. These limits indicate the most your insurance company will pay for a single claim. Most homeowners and dwelling insurance policies use the construction cost of your home as a basis, providing enough coverage to rebuild your home on the same property if it is completely destroyed. Coverage on both types of policies extends to most of the common causes of home damage, such as fire, wind and lightning.
Omissions and Gaps
Homeowners insurance and dwelling insurance both omit certain types of damage. Neither one covers your home in the event of a flood or earthquake, because these types of risks are so selective and vary by location. If you want your home, or your home and contents, insured against floods and earthquakes, you need additional coverage for that specific risk.
While dwelling policies don't cover any of your home's contents, homeowners insurance may only cover a portion of the cost. You may choose to insure your home's contents for their replacement cost, which provides enough coverage to buy all new possessions, or for their cash value, which only pays you enough to cover what your items were worth when they were destroyed. You must pay the difference when you buy new items or find suitable used replacements.
If you own investment property, such as a home that you rent out or a multi-unit apartment building, you may want dwelling insurance instead of homeowners insurance. Dwelling insurance protects your property, and your tenants will be responsible for providing their own renters insurance to cover their possessions inside the building. However, if you offer a rental unit furnished with appliances, furniture and decor you own, you should get coverage that applies to the contents you own in addition to the dwelling. Extended dwelling coverage is one option, providing additional compensation in the event of a total loss.
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