How much dwelling coverage do you need?
With a $300,000 limit on a house that costs $420,000 to rebuild, a $60,000 claim pays $52,571 instead of $59,000.
Independent site, not an insurer or a broker. ZIP code figures are the Treasury's for 2018 to 2022.
Example, not your result yet· change a figure to see yours
Paid with the proportional reduction
$52,571
The limit is 89% of the $336,000 required: the claim is cut by $6,429.
| Limit needed to avoid the reduction | $336,000 |
| Reduction from underinsurance | $6,429 |
| Left for you to pay | $7,429 |
Some policies pay the actual cash value instead when it is higher; read the loss settlement clause of your own form.
Compiled by Radif Partners · Where the numbers come from · Treasury FIO data, BLS indexes and the texts cited below · not a quote
Dwelling coverage, Coverage A, should equal what it would cost to rebuild the house, not its market value or the loan balance. The cost to rebuild excludes the land, but it includes demolition, current building code and local labor, which is why it can be well above or below a sale price. The limit matters even on small claims. Most homeowners forms pay replacement cost only when the limit is at least 80% of the full replacement cost; below that, a partial loss is paid in proportion. On a house costing $420,000 to rebuild, the line is $336,000. With a limit of $300,000, a $60,000 kitchen fire pays $52,571 after the deductible instead of $59,000. Claims are large: the five-year average paid claim in the median ZIP code of the Treasury file was $15,105, and above $21,424 in Alaska, California and Oregon.
Rebuild cost, market value and the loan
Three numbers get confused. The market value is what the house and its land would sell for. The loan balance is what you owe. The replacement cost is what a contractor would charge to clear the site and rebuild the same house with materials of like kind and quality at today's prices and to today's code. Only the third belongs in Coverage A. In a city where land is most of the price, the rebuild cost can be far below the market value; in a rural area, or for an older house with plaster and detailed trim, it can be above it. Insurers estimate it with software from the square footage, construction and finishes, and that estimate is only as good as the description you gave.
The replacement cost condition
The loss settlement clause of most HO-3 and HO-5 forms works as follows, in our words. If the dwelling limit at the time of the loss is at least 80% of the full replacement cost, a covered loss is paid at replacement cost, up to the limit. If it is lower, the insurer pays the larger of the actual cash value of the damage or a share of the replacement cost equal to the limit divided by 80% of the replacement cost. The calculator models the second figure; the actual cash value alternative depends on the depreciation of the damaged parts, which only an adjuster sets.
| Limit as share of rebuild cost | Dwelling limit | Paid on a $50,000 loss | Reduction |
|---|---|---|---|
| 60% | $240,000 | $36,500 | $12,500 |
| 70% | $280,000 | $42,750 | $6,250 |
| 80% | $320,000 | $49,000 | $0 |
| 100% | $400,000 | $49,000 | $0 |
Check your limit against the rebuild cost
Example, not your result yet· change a figure to see yours
Paid with the proportional reduction
$52,571
| Limit needed to avoid the reduction | $336,000 |
| Reduction from underinsurance | $6,429 |
| Left for you to pay | $7,429 |
Why limits fall behind
A limit set when the house was bought drifts below the rebuild cost as construction costs rise, and the years after 2022 saw fast increases in labor and materials. Many policies carry an inflation guard that raises the limit each year, and many insurers update their estimate at renewal. An addition, a finished basement or a new kitchen also raises the rebuild cost without changing the policy unless you report it. Every few years, and after any renovation, compare the limit with a fresh estimate: from the insurer's tool, an independent appraiser or a local builder's cost per square foot.
Extended replacement cost
Some insurers sell an endorsement that pays above the dwelling limit, often by 20 to 50 percent, when a total loss costs more to rebuild than expected, for example after a wildfire when every contractor in the region is busy. A few remove the cap altogether. These endorsements are worth asking about in wildfire and hurricane areas, where demand surges push rebuild costs up after a disaster. Ordinance or law coverage, which pays the extra cost of meeting current code, is a separate item and often limited to 10 percent of the dwelling limit unless you buy more.
Too much coverage costs money too
The premium is roughly proportional to the dwelling limit, so a limit far above the rebuild cost pays for coverage you can never use: the insurer pays at most what it costs to rebuild. A limit set at the market value in a high land-value area is the common case. Lenders sometimes ask for a limit equal to the loan; federal mortgage guidelines generally accept the replacement cost estimate instead, so a servicer's request for more is worth questioning.
After a total loss
When the house is destroyed, the dwelling limit is the ceiling of what the insurer pays for the structure, whatever the condition clause says. Debris removal is often paid within that limit, with a small extra amount in some forms, and the cost of temporary housing comes from loss of use, a separate limit. That is the moment when a limit set years ago shows its gap, and it is why a check every few years is worth the time.
Other structures and contents follow
Coverage B for detached structures and Coverage C for personal property are often set as a percentage of Coverage A, commonly 10 percent and 50 to 70 percent. Raising or lowering the dwelling limit moves them too. If the contents are worth more or less than that, ask for the percentage to be changed. Renters, who have no dwelling limit, size the contents limit from an inventory, as the renters calculator does. For the cost of the premium itself by ZIP code, see the state ranking.