Does My House Have Enough Homeowners Insurance Coverage?

The dwelling coverage in a homeowners insurance policy generally protects the insured house itself. As with other insurance coverages, dwelling coverage is typically subject to limits -- and some homeowners select dwelling coverage limits that are lower than they should be. Here’s why some homeowners end up under insuring their houses, and how you can make sure your house in Massachusetts is fully protected in the event of a covered disaster.


Will My Homeowners Insurance Coverage Sufficiently Protect My Massachusetts House?

Dwelling Coverage Insures Houses Themselves

When looking to see how well your Massachusetts house is insured, you’ll need to look specifically at your homeowners insurance policy’s dwelling coverage. This is normally the coverage that provides protection for a house itself (and sometimes also for attached structures, like a garage). Non-attached structures, personal belongings and liability lawsuits are usually addressed by other coverages that may also be included in your home insurance policy.

You'll likely find that your home insurance policy's dwelling coverage limit is set to one of three amounts:

  • The remaining balance on your mortgage

  • The fair-market value of your house

  • The replacement cost of rebuilding your house

While it’s understandable why homeowners sometimes set their home insurance policy’s dwelling coverage limit to either their mortgage’s balance or house’s value, these amounts usually provide insufficient coverage.

Setting a Dwelling Coverage Limit Equal to a Mortgage’s Balance

Most lenders require homeowners to insure their house for at least the balance on their mortgage so that the lender’s financial investment in the house is protected. Homeowners may select this minimum limit because they don’t think they’ll have a major claim, or they might end up with this limit if their policy expires. Should a homeowner’s policy expire or be voided, a lender can usually purchase a policy for their interest in the house (and still require the homeowner to pay for it).

In either situation, having dwelling coverage that only provides protection for a mortgage’s balance will usually leave a house vastly underinsured. Should something happen to the house -- and there are major incidents that could occur every day -- a homeowner likely won’t have any resources to help them recover from the loss.

Setting a Dwelling Coverage Limit Equal to a House’s Value

Homeowners who select a dwelling coverage limit that’s equal to their home’s fair-market value usually think they’re purchasing a sufficient amount of insurance. This selection does provide some protection for a homeowner’s investment in their house, but there are two common situations where this selection can still leave houses under-protected.

First, dwelling coverage often isn’t increased as a house appreciates in value. Most standard home insurance policies don’t automatically increase the amount of dwelling coverage, and homeowners frequently don’t bother to review their dwelling coverage limit when their policy renews. Over time, the current value of a home can grow to be much higher than the house’s value when the dwelling coverage limit was set.

Without periodic adjustments, homeowners might get reimbursed for the money they’ve put into their house. They could lose any appreciation the house has gained since they’ve owned it, though. In some cases, that can be thousands (or tens of thousands) of dollars.

Second, the cost of rebuilding a home is often greater than a house’s value. This is especially common after a regional disaster when labor and materials are in high demand.

With only enough coverage to cover their home’s value, homeowners might not actually have enough coverage to rebuild their home. Should something happen to their house, homeowners might have to purchase a different house, rebuild their house but make it smaller, or take out a loan to rebuild the home to its pre-disaster state.

Getting Homeowners Insurance with the Right Coverage for Your Massachusetts House

To avoid either of these pitfalls, set your home insurance policy’s dwelling coverage limit not to either your mortgage’s balance or your home’s value. Instead, set your dwelling coverage limit to cover the cost of replacing (or rebuilding) your home.
There are a few ways this might be done. You may:

  • Increase your homeowners policy’s limits by a certain amount

  • Select “extended replacement coverage,” which usually provides coverage up to 125 percent of your home’s value

  • Select “guaranteed replacement cost coverage,” which usually guarantees your home can be rebuilt regardless of the total cost

For help reviewing your homeowners insurance policy and adjusting its dwelling coverage limit, contact a knowledgable independent insurance agent at John P. Russell Insurance. They have years of experience working with these coverages and can help you assess your situation appropriately.