When you own a home, you face the possibility of experiencing structural damage or loss due to catastrophic events. Everyone knows that homeowners insurance is designed to cover loss to residential structures. However, many are unaware that a separate dwelling policy is also available and might be a more cost-effective choice for some residential property owners.
In a homeowners insurance policy, "dwelling" is defined as the physical home that the policyholder lives in and any structures attached to the home. In a separate dwelling policy, the dwelling is also the structure and attached buildings. However, in a homeowners policy, not only is the dwelling insured but the policy generally protects the personal belongings of the occupants and includes personal liability coverage. A separate dwelling policy only covers damage to the structure and does not include personal belongings or liability protection.
What Is Covered
Typical dwelling coverage, whether in a separate policy or within a homeowners policy, includes any damage to the structure or fixtures and systems, such as plumbing, heating and cooling and electrical wiring. Decks, porches and garages that are attached to the structure are typically covered too. Insuring other structures, such as detached garages, guest cottages or storage sheds, will require additional coverage.
Who Needs Dwelling Insurance
A separate dwelling policy is generally used for property that is not a primary residence. This would include vacation homes and investment properties, where the policyholder is either living in the dwelling sporadically or leasing it for income. Dwelling insurance can be supplemented with liability insurance and the two types of insurance might be packaged as landlord insurance by some insurance companies. This is also the type of insurance a lender might purchase when a policyholder has allowed his homeowners insurance to lapse.
Dwelling insurance might be the most cost-effective way to purchase insurance for people who own multiple homes. However, vacant dwellings typically cost more to insure because empty homes are at risk for vandalism. Damage incurred by vandalism is not included in a basic dwelling policy and requires the additional cost of a vandalism rider. Dwelling coverage should be reviewed occasionally to ensure that adequate coverage is being provided. For instance, coverage is usually structured to pay for the replacement cost of the home. If coverage should drop below 80 percent of the full cost of replacement, the insurer may reduce claim compensation. Your insurance agent can tell you what your home replacement cost is and give you guidelines for reviewing your particular policy needs.
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