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Dwelling Insurance Explained in Plain Understandable Terms

These days, buying home insurance can be pretty confusing. There are so many different types and it’s hard to tell sometimes what the differences are.

One type that can be very confusing is dwelling insurance. Many people ask the question, “what is dwelling insurance?” Dwelling insurance can be purchased by homeowners or landlords and is similar to homeowner’s insurance except that it’s much more restrictive. There are benefits for purchasing dwelling insurance for some, while other will simply never need it.

However, if you should have it and don't you could very quickly find yourself regretting your decision to not purchase it if something tragic were to happen to your home.

What Is Dwelling Insurance?

First of all, let's get very clear on exactly what dwelling insurance is. Dwelling insurance is a type of insurance that covers the structure of your home and the personal property within. It's similar to homeowner's insurance but less comprehensive. There's a bit more to dwelling insurance, though, than just that. Dwelling insurance can be purchased to cover the home you live in, or it can be purchased for homes that you own and don’t need comprehensive coverage on, for example a rental property or vacation property. But don’t worry, we’ll get more into that in a moment.

Basically, what you have is a policy where only the structure of your home is covered. Dwelling insurance covers certain and specific perils, hazards that can damage your home or the cause of loss.

Furthermore, that dwelling is only covered against certain “named perils,” including lightning, fire, wind damage, hail or sleet, sinkholes, riot, smoke damage, and explosion. There are other additional dwelling insurance perils that you can add, but the ones we just listed are usually standard. Others perils include burglary or theft (when something that's part of the structure is stolen), vandalism, earthquakes (in some states), and a few others.

When some sort of peril occurs the dwelling insurance will pay for the rebuilding of that structure, or portion of that structure that's been damaged. The building material and labor is all the insurance will cover.

It's also important to realize that anything attached to the main portion of the home is most often what's considered the structure. This can mean an attached garage, a porch or deck, etc. Anything that's attached to the main physical structure of the house. Unattached garages, guest houses, and sheds aren't typically covered. Therefore, you would have to add any of those structures separately to your policy in order for them to be covered and replaced or repaired if necessary.

Why Would Somebody Need Dwelling Insurance?...

At first glance, dwelling insurance looks a lot like regular home owner's insurance. So why would someone choose dwelling insurance instead of a full-blown homeowner’s insurance policy? The remainder of this article should help you understand some different scenarios and answer the question of “what is dwelling insurance,” for you.

The main reason people have dwelling insurance is when they're not worried about the contents of the home, like rental property owners or the owner of a building that is leased out. Again, dwelling insurance is basic, covering the structure only.

If You Own Rental Property You May Need Dwelling Insurance...

When you own a rental property that is separate from where you reside, you don't typically have any possessions in the rental property. So having full coverage is basically unnecessary, you really only need insurance on it to cover damages that the renters would cause to the structure.

Since the rental property is a part of your income and your livelihood, you'll want to be sure that the structure of the property itself is covered. This is a prime example of when dwelling insurance is a good idea.

This is called tenant occupied dwelling insurance. With this type of dwelling insurance there will likely be additional named perils that you'll want to add to your policy. Things like protection against burst pipes, water damage, broken glass or windows, vandalism, etc. These are things that will occur more likely because of the fact that there are people renting the property.

There are some homeowners who are unable to get standard homeowners insurance for various reasons including past claims, bad credit, poor property conditions, etc. For those who are unable to get standard homeowners insurance there exists owner occupied dwelling fire insurance so even if your past history or home’s condition disqualifies you from standard insurance, you can still purchase dwelling insurance and protect your assets.

Owners of rental properties are very strong candidates for this type of coverage, because it's exactly what they need. The renters are responsible for insuring their own possessions and you are responsible only for the structure of the property.

So if you're a landlord or you own rental property and you were asking “what is dwelling insurance,” hopefully you understand now. More importantly, you now probably realize that you need it. You may even realize that you currently have a policy where you're over-insured and paying more than you need to. With a rental property you really only need to cover the physical structure of the home, not the contents of the home, but you will probably still want liability insurance, too.

Bottom Line... Now That You Know What Dwelling Insurance Is...Who Is Dwelling Insurance Best Suited For?

The bottom line is that dwelling insurance is best for those who are covering a structure that they don't actually live in or hold their own possessions in, at least not full time. However, it remains an important part of your typical homeowner's insurance.

If you own a rental or vacation property you're also a great candidate for swapping a more expensive homeowner's insurance for the more appropriate coverage of dwelling insurance. If you're a homeowner, you now should have a much better understanding of what the dwelling portion of your insurance policy is for and be able to adjust your coverage as needed.