The catastrophic wildfires last year were an unfortunate reminder of how important it is to carry sufficient dwelling insurance on your home. Many homeowners didn’t have sufficient insurance coverage to cover rebuilding costs. In fact, more than half of homes across the United States are underinsured by 21%. I’d like to make sure my readers aren’t among those in that category.
Your dwelling insurance is the centerpiece of your policy. The coverage amount represents how much it would cost to rebuild your home. In San Francisco—and probably The Bay Area in general—we’re looking at $500 per square foot in average construction costs. So a 1,500-square foot single-family home should technically have a total of $750,000 in dwelling coverage.
What many homeowners may not know is that insurance companies base all the other policy costs—personal property, for example—on a percentage of the dwelling amount. So the most cost-effective way to structure your policy is by getting a realistic amount of dwelling coverage and then including what’s called extended dwelling coverage to supplement the base amount.
The extended dwelling coverage is typically 125% of the dwelling amount, but you can bump it up higher to 150%. By including the extended amount, it shaves some of the cost off the dwelling coverage and doesn’t unnecessarily jack up the cost of all the other coverage areas.
So dig up your insurance paperwork and see what your coverage looks like. It’s a good idea to keep pace with current construction/rebuild costs so you at least have the option of rebuilding if your home is destroyed.