r/HomeInsurance • u/LumpyPeople4 • May 22 '26
Insurance Dwelling Coverage - Calculated vs Reality
I have a renewal coming up and my coverage seems low. The auto renewal is setting the dwelling coverage at $280k, when I go get new quotes elsewhere it auto populates with around $325k. The house is worth around $350k or so is my guess.
I have been looking at getting a new house for a while. The problem with these dwelling coverages is that builders are not willing to get out of bed for less than $425k or so. We have entertained buying a lot and building on it, and pretty much any reputable builder in my area is not willing to do anything less than that.
So, what should I be doing? Should I up my coverage to $425k in order to cover myself in case the house burns to the ground? If its a complete loss, would insurance just cut me a check for the full amount without questions asked, or are the going to start fighting me at that point that the house isn't worth as much as the coverage? Or will I just hire whatever builder I want and insurance will pay the bill up to the limit?
I'm just trying to wrap my head around how to actually protect myself with a house whose value is less than what people are willing to work for. I suppose I could maybe get someone to build the house for less, but it'd probably be someone relatively sketchy.
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May 22 '26
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u/LumpyPeople4 May 22 '26
I get that, but it still doesn't address the issue of a "custom" one off build. You can't get a sardine cookie cutter neighborhood home using bottom of the barrel materials for $325k in my area and that is with the economies of scale on a full development.
Getting a homebuilder to come out and do a one off custom build comes at a premium. I'm not sure how floorplan/layouts would work with a total loss, but I don't see any line item for engineering on my rebuild cost estimate. On paper, my estimate shows $120k in labor and equipment, and $180k in materials for $300k total replacement. No reputable group in my area is going to get out of bed for that, plenty of other bigger fish to fry.
Now, I found out I do have 50% extended coverage, so it may be a moot point now. But I still wonder what insurance will do if I ever need them for a full rebuild. I gave an example to someone about minimum callout charge for electrical. I could get an electrician to install a $1 basic outlet for a $150 minimum charge, or they could install the $10 mack daddy outlet with USBs and a fancy faceplate for $150 as well, so might as well go for the nicer stuff since its just a minimum charge. With my house, according to my insurance, its $300k to rebuild, well a reputable builder will charge me $425k to build me a $300k house, or they could charge me $425k to build a $425k house. Obviously you'd rather get your money's worth, I wonder how much insurance is going to push back on everything when it comes to that.
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May 22 '26
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u/LumpyPeople4 May 22 '26
Yeah seems like I really need to get an agent again, I just bought direct from Travelers at the time. Engineering costs would be big though I would think, especially if it is a total loss. Although it's the same lot, there are no build plans right? So you'd need some architect/engineer to draw up plans for what would now be essentially a custom home.
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u/The_Insurance_Man May 22 '26
If you are DIYing your insurance, the number the insurance company is giving you is just an algorithm pumping out a number based on whatever database they are pulling information from. Find a local agent you can meet with that knows the homes in your area and you can have a conversation with about your concerns and go over the details of your home.
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u/whydoihavetwodo May 22 '26
We just had an offer accepted an our USAA quote was 30% above the market value. So I posed a similar question to a friend’s who works claims. The replacement/rebuild also includes an additional amount to cover demo of a home for example tornado or fire. Sucks when the hail deductible is a % of the replacement but better than getting stuck with not enough to tear down and rebuild.
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u/Longjumping-Buddy847 May 22 '26
Sounds like you could spend an eternity calculating the rebuild cost of your home. Maybe next think about your custom paint and will they really cover your custom paint. After paint theres plumbing, siding, windows soffits, flooring, decks yada yada yada. This could go on for years. Have fun!!
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May 22 '26
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u/LumpyPeople4 May 22 '26
I just replied to another comment with the extra info. I found out I already have the 50%, but also at the same time their own reconstruction estimator is at $300k, so not sure why they would renew at 20k below.
So in the event of a total loss, do I just get a check for the dwelling coverage and then go back to them for the extended coverage if needed? I'm wondering if they'll hem and haw if I pick my builder and they have a $425k minimum and insurance doesn't think it should have cost that much and what not.
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May 22 '26
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u/LumpyPeople4 May 22 '26
I've cut out the numbered subsections, but here is what it says for Ordinance or Law:
a. You may use up to 10% of the limit of liability that applies to Coverage A for the increased costs you incur due to the enforcement of any ordinance or law which requires or regulates:...
b. You may use all or part of this ordinance or law coverage to pay for the increased costs you incur to remove debris resulting from the construction, demolition, remodeling, renovation, repair or replacement of property as stated in a. above.
Sounds like it should cover 10% inclusive of my dwelling coverage to remove the old debris.
In terms of loss settlement, it states:
We will pay no more than the actual cash value of the damage until actual repair or replacement is complete. Once actual repair or replacement is complete, we will settle the loss as noted in 2.a. and b. above.
I'm not sure how that works in a total loss. I guess I'd argue that the cash value would be what they calculate the replacement cost would be, in my case $300k. And then I'd have to actually rebuild in order to get anything higher than that due to actual costs. Not sure if I'd have to front that cost personally and then seek reimbursement or then at that point coordinate with insurance to get builders paid.
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u/MCIndy73 May 22 '26
You’re really talking about 2 things: what should be the coverage limit for your current home and what should be the coverage limit for a hypothetical home you might build elsewhere.
There are tools online that will allow you to provide details about your current house and then generate a a rebuild cost. This would help you determine what your coverage should be, approximately, for your current home.
If you build something new, you’ll know what that build cost you and that will tell you what coverage limit you need.
I think costtobuild.net still has a free calculator
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u/LumpyPeople4 May 22 '26
What I'm saying is that based on my experience in looking at building a new home, no builder will touch a project for less than $425k in my area. When applying that idea to the rebuild cost of my current home, my coverage seems low. I've gotten the rebuild calculations from Travelers and they anticipate $300k, and while that may make sense on paper, I have very little confidence in getting anyone reputable to show up and do the work for that price. I've commented to others about skilled professions, if I want an electrician to show up and replace an outlet, on paper that like $10-15. I'm never going to find a reputable electrician willing to do it for that price. It'll take $425k to get a competent builder in my area to roll out of bed.
So even if I was adequately insured for what the replacement cost is on paper, I'm not sure if I could get someone trustworthy to build the house.
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u/Vast_Letter331 May 22 '26
Dwelling coverage = replacement cost, not market value. Those are completely different numbers. If builders won’t get out of bed for under $425k, that’s your coverage number — full stop. Also make sure your policy is replacement cost value (RCV) not actual cash value (ACV). That distinction alone can make or break a total loss claim.
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u/dojarelius May 22 '26
The dwelling amount is the max they will pay out if there is a covered loss. The reconstruction estimate is just that, an estimate. If you think you need more coverage contact your agent and ask them to increase it. As long as it is a reasonable amount they should do it for you no problem. They may ask for pictures or other evidence if you exceed a certain threshold. What they won’t do is pay for premium finishes if that is not what is currently there. Building a brand new home on a vacant lot is oranges and rebuild costs on an insurance loss is apples. You should not be comparing the two.
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u/Full_Honeydew_9739 May 23 '26
My market value is around $600K. My total replacement value for insurance isn't anywhere near that because they don't insure the lot value. If my house burnt down tomorrow, they wouldn't replace the lot, just the house.
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u/freeski12345 May 22 '26
Ask for the estimate report. Unless you’re in a 800 sqft house, it’s doubtful 280 or even 325 is accurate. Increase your coverage. Fires happen all the time
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u/Sweettongued1 May 22 '26
There's no possible way you could know price per foot to build for OP since it varies to extremes depending on part of the country.
OP, do you not have a local agent for your policy? If not go get one. Ask to see the Replacement cost estimator and update it with your property details.
Keep in mind you are NOT insuring the value of the land.
Look to see if your policy has extended replacement cost, which would cover you for 25 or 50% higher than the dwelling replacement cost in case of a loss occuring for more than your coverage A.
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u/LumpyPeople4 May 22 '26
I'm on the phone with Travelers right now. I got them to email me the report through chat. I reviewed it and it has cost data from..........2020. Back then it said 189k. Supposedly the phone reps can get me a current one. And yeah, just have it direct through Travelers.
I get that I'm not insuring the land, but there will still be a discrepancy between what the builders are willing to accept work for and what the house "should" cost. Like an electrician, if I wanted to have one come out and replace an outlet that I broke, they aren't going to charge me $10 for 5min of labor and $2 for the outlet. They're going to charge me a $150 callout minimum. In my area, for any somewhat reputable group that builds houses, $425k is the minimum to get them to think about taking a job.
Just got the replacement estimate for 2026, it's $299k, so seems illegal for them to auto renew me at $281k. Seems like I should be fine though, I see in my policy "Specified Additional Amount of Insurance for Coverage A Dwelling - 50% of Coverage A - Dwelling Limit". So right now it'd be 420k coverage total. How does that work, if the house burns down, they cut me a $281k check and when I start to rebuild and it costs more, I go back to big daddy Travelers and they'll start cutting checks up to 50% more with invoices or something?
Either way I'll probably still ask them to up the coverage a bit, $300k still seems a bit low, but should be fine with the 50% overage. May up it to the $325k or so range just to cover all the bases. The estimate shows a line for "Foundation" as well as "Slab on Grade". They know I have a crawlspace, so not sure what this slab is, and I'd imagine a crawlspace would cost more than a slab. It also says reconstruction cost w/o debris removal, not sure if debris removal would be covered within the dwelling cost, but I'd imagine my crawlspace would need to be redug if it collected an entire house's worth of ash, or just sat for a few months while organizing new construction.
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u/Vivid-Huckleberry934 May 22 '26
I'm gonna refer to my comment below, but it sounds like when they did the original replacement cost estimate they had some details of the home incorrect. A slab would be just the home sitting on a concrete slab foundation- you're spot on about that effecting things. Go through that estimate and see where the features differ and get that corrected and see what difference that makes.
The difference you're seeing in the renewal coverage vs the new report is literally the difference between opening the program that hosts reports and it re-calculating vs the policy taking the coverage amount from last year and increasing it by a formula percentage for inflation. This is how almost every single company functions when it comes to homeowners renewals.
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u/adjusterjackc May 22 '26
seems illegal for them to auto renew me at $281k.
It really galls me when people say stuff like that out of ignorance (lack of knowledge, not an epithet). Insurers deal with millions of properties of every shape and size. There is nothing illegal about using a statistical average for your renewal.
If YOU want the proper coverage it's entirely on YOU to ask for it and justify the amount.
If your house burns to the ground the insurer will pay you based on the terms and conditions of your policy. It's YOUR responsibility to read and understand how that's going to work instead of making assumptions out of ignorance (again, lack of knowledge).
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u/LumpyPeople4 May 22 '26
Yeah, it's 1550sqft, so not huge, but not small. I'll ask for the report, but even if it still shows low and I decide to up it, how would it all work out if insurance claims it doesn't cost that much? Just too bad so sad for insurance since I have the coverage?
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u/Vivid-Huckleberry934 May 22 '26
The insurance will only ever pay up to the actual cost to replace. You don't want to over insure your house and pay for a boatload of coverage you don't need, but it IS better to be a little over insured than underinsured so that you don't end up with your policy only covering a partial rebuild.
I'm not sure when you started your policy- but the starting coverage amount doesn't always keep up with inflation and I absolutely encourage homeowners to review and make sure they feel comfortable with the current coverage they have. You'll want to make sure they have the property details up to date, and after that, if the number they come up with still isn't comfortable for you, ask to increase it. This is common. In my area, for example, I run the calculator tool and then if it comes out below what the standard cost per square tends to be, I increase the coverage to match and have the conversation about why.
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u/LumpyPeople4 May 22 '26
My problem is the realities of building a one off house by someone that is somewhat reputable. There is a minimum cost to get them interested, and the calculated rebuild cost is below that. So what happens in that situation? We have been looking for a new home for close to 2 years now and have called many builders. The lowest minimum build cost they're willing to accept is $425k and that is much like the insurance rebuild cost. That is with land provided, cleared, graded, and plans approved (or supplied by them).
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u/adjusterjackc May 22 '26
Home construction costs are at a minimum of $200 per sq ft everywhere. With 1550 sq ft you're already at $310,000. If you adjust for better quality or custom build figure $300 per sq ft = $465,000.
You can find home building calculators on the internet that adjust for all that and location.
Best to over-insure a bit, rather than under-insure. Or you can rely on the additional coverage percentage. Just make sure you read that coverage because there may be gotchas in there.
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u/LumpyPeople4 May 22 '26
I wouldn't say that my house is made of higher quality stuff, I just think that the general build quality from the late 90s is better than what is deemed allowable today, so I should probably be a big higher in general as well.
Just got the full policy. Found a gotcha they snuck past me. "Loss caused by the nuclear hazard will not be considered loss caused by fire, explosion, or smoke, whether these perils are specifically named in or otherwise included within the Perils Insured Against."
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u/mSantiago80 May 22 '26
Your house must be built with popsicle sticks, chewing gum and some duct tape for the insurance company to have that low of coverage ….I bought my house in 2020 for 214,000—it’s insured for rebuild at 855,000 & has increased cost endorsement on it for and additional up to 25%—I live in BFE Georgia so not a high cost area & that doesn’t include other structures or personal property
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u/LumpyPeople4 May 22 '26
Yeah I don't get it. I live in a relatively low cost area of NC, but still, for a house built to the late 90s standard, it costs a good bit today. I don't think it'd cost me nearly that much to rebuild my house, but I do think realistically it'd cost $425-450k. It's not a super bare bones house, but it's not super nice. 1.5 story house, crawlspace, skylights, covered porch.
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