Replacement Cost vs. Market Value for Colorado Homeowners

Dwelling coverage: what amount is listed for your house?

“Dwelling” is the insurance term for the house itself. Think of its walls, roof and floors.

Dwelling coverage generally helps pay to repair or rebuild the house after damage the policy covers. The amount listed for this coverage is the dwelling limit.

Look for it on your declarations page, the summary of your policy’s coverages and amounts. It is often called Coverage A.

A shed or garage that stands apart from the house is a separate question. Ask which part of your policy applies to that building. Do not assume the house’s limit answers every question about the property.

The listed limit is not a promise of a payment that size. The damage, deductible, policy terms and any extra coverage affect what a claim may pay.

Can rebuilding cost more than the home would sell for?

Yes. It can also cost less.

A house might sell for a high price because buyers want its land or location. Those things do not add the same amount to the cost of rebuilding its walls and roof.

The reverse can happen. A house might sell for less in a slower market, while labor and materials still cost a lot.

Think about a brick exterior or wood floors. Their rebuilding cost does not rise and fall just because buyers offer more or less for the home.

That is why an online home-value estimate cannot answer the insurance question by itself. Ask for a rebuild estimate based on the house you have today.

What should you check in a home rebuild estimate?

Start with the details. Does the estimate describe your home as it is now?

Check:

• Size and layout: square footage, number of stories and how the house is built.
• Materials: the roof, exterior walls, floors and other main finishes.
• Changes: additions, kitchen updates and bathroom remodels.
• Timing: when the estimate was made and which local building costs it uses.
• The work: what the estimate includes to rebuild this house.

For example, a kitchen update changes what would need to be rebuilt. An old estimate may miss those details.

Ask: “Can we check that this estimate describes the home I have today?”

A rebuild estimate is a starting point. It is not a guaranteed price from a contractor. Your agent can help explain what went into it.

What should Colorado homeowners check about local building rules?

Where you live matters when you rebuild.

Boulder County’s Marshall Fire rebuilding guidance for unincorporated areas is one example. It covers permits, building rules and steps to make homes more resistant to wildfire. That guidance applies to those areas. It should not be treated as the rule for every Colorado city or county.

Ask two questions:

1. What building rules apply where my home is?
2. What does my policy cover if rebuilding must meet those rules?

Kleve has heard homeowners question whether rebuilding could cost as much as an estimate shows. He has also seen dwelling limits below his system’s rebuild estimates.

Check the home details and policy together before deciding the limit is too high or too low.

What if your insurance limit is lower than the rebuild estimate?

Check the policy for extra coverage and the rules for using it:

• Extended replacement cost can add an amount above the dwelling limit. A cap and policy conditions still apply.
• Ordinance or law coverage can help with certain extra costs of meeting building rules after damage the policy covers. It serves a different purpose.

Do not assume either is included. Also check the deductible and how the policy pays claims.

The NAIC’s home insurance shopping guide explains these options and questions to ask.

Review what the estimate includes and what the policy provides before choosing a change. The two numbers alone do not tell you to raise the limit by $200,000.

Should you lower your home insurance limit if the selling value drops?

A drop in selling value alone is not a good reason to lower the limit. It does not tell you what rebuilding would cost.

If the insurance bill is hard to manage, tell your agent. Ask about the available choices and what each would change.

For example, compare the price and the amount you might pay yourself under different deductibles. Ask what protection you would give up with a lower limit or different coverage.

Kleve’s point is to review affordability and rebuilding cost together. Both matter when you decide what to do.

Your home insurance review checklist

Before your next coverage conversation:

Find the dwelling limit on your declarations page.Ask when the rebuild estimate was made.Check that it includes your home’s current size, materials and updates.Ask how the policy pays for damage and which deductible applies.Check for extra replacement-cost protection and its conditions.Ask about coverage for required building-code upgrades.Write down anything you want explained before making a change.

Need help understanding your home’s three numbers?

Have your declarations page and any rebuild estimate handy.

A licensed Hoery Insurance Agency team member can help you review the numbers. That includes the amount listed for the house, the home details in the estimate and any extra coverage in your policy.

You do not need to learn all the insurance terms first. Start with the number that is confusing you.

Contact our team about your home coverage

This article provides general education. Coverage and claim payments depend on the applicable policy, endorsements, limits, deductibles and facts of the loss.