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Dwelling coverage, explained
The most important number on your home insurance policy. Set it on replacement cost, not market value — and consider extended replacement cost in catastrophe-prone regions.
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Replacement cost vs market value
| Concept | What it measures | When it matters |
|---|---|---|
| Replacement cost | Cost to rebuild today using current labor + materials. | Setting your dwelling limit. |
| Market value | What someone would pay for the home + land. | Buying, selling, or refinancing. |
| Actual cash value (ACV) | Replacement cost minus depreciation. | Cheaper claim settlement — avoid for dwelling. |
| Extended replacement cost | RC + 20–50% buffer above your limit. | Catastrophe regions where rebuild costs spike. |
| Guaranteed replacement cost | Whatever rebuild actually costs — no cap. | High-value homes, premium carriers only. |
A simple replacement cost estimate
- 1Multiply heated square footage by local cost-per-sqft to rebuild ($150–$350/sqft in 2026, varies by region and finish level).
- 2Add 10–15% for demolition and debris removal.
- 3Add the cost of any custom features — high-end kitchens, finished basements, hardwood throughout, premium roofing.
- 4In catastrophe regions, add 20–50% extended replacement cost coverage.
- 5Re-check the number at every renewal — construction inflation has been 8–12% in many markets.
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Frequently asked questions
Dwelling coverage (Coverage A) is the limit your insurer will pay to rebuild your home's physical structure after a covered loss. It is the single most important number on your policy and drives the cost of most other coverages.
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