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    The Basics of Home Insurance - Dwelling Value

    Posted by Ron Wadley on Mar 28, 2023 4:06:42 PM

    There's no denying the fact that buying a home is one of the most significant investments Texans will make in their adulting phase of life. However, we have gathered from our conversations with Texas homeowners that while they understand the market value of their home, they don't always understand what it would cost to reconstruct their home from the ground up! As a Texas homeowner, you need to ensure that you have the ability to rebuild that significant investment if something bad happens to your home, which is typically a significant part of your net worth. In this article, we'll explore the concept of dwelling value and its importance when it comes to Texas home insurance policies. So buckle up and get ready to learn something new about protecting your home and your investment in this installment of The Basics Of Home Insurance!

    The Basics Of Home Insurance - Dwelling Value

    Definition of Dwelling Value

    By pure definition, the dwelling value is the amount of money it would cost to replace an insured home or dwelling in the event of a covered loss. Seems easy enough, but it can be confusing in how it's calculated and what all it is used for on your insurance policy. The dwelling value will be determined by accounting for square footage, labor costs, debris removal, materials, and other expenses associated with recreating a primary residence or replacement dwelling. And while the variables involved can vary from one house to the next, a properly calibrated estimation system can do an excellent job of estimating the amount of money that will be required to rebuild your home in the event of a total loss.

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    Purpose of Understanding Dwelling Value

    In Texas, understanding the dwelling value of your home is the first step to understanding your home insurance policy. Knowing your dwelling value allows you to ensure that you have adequate coverage for damages caused by things such as fires, windstorms, and theft that can result in a total loss. It also ensures that you’re paying an accurate premium based on the current market values for similarly valued dwellings in your zip code. A secondary purpose is that other policy coverage amounts will be determined by applying a percentage to the dwelling value to determine line items like personal property, loss of use, building ordinance, and even deductible amounts.

    Factors Affecting Dwelling Value

    We listed many factors that can affect the dwelling value estimation of a home in Texas. The size and square footage of the residence is often a major factor, as well as the cost of labor and materials needed to rebuild it in the event of a loss. An additional factor that may affect the value on some homeowners policies is that they cover costs associated with debris removal, which can also add to the average cost per square foot. Let's look at the major drivers of the dwelling value on your policy.

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    Square Footage

    Obviously, square footage is the most important factor in determining the dwelling value of a home in Texas. Larger homes tend to have higher replacement costs than smaller ones due to the additional labor and materials needed for construction. The purpose of a home insurance policy is to get you back into the same sized home that you had prior to the catastrophe and accounting for the square footage is always the first place to start.

    Building Material Quality

    The next biggest piece of the dwelling value puzzle is the quality of building materials that were used in the construction or renovation of your home. A frame home that has vinyl siding is going to require a different amount of money to rebuild when compared with a solid brick home. This means that the average cost to rebuild would be wildly different. The same comparison for building costs can be made on the interior portion of the home as well. Formica countertops in your kitchen are cheaper to replace the granite. These interior items can change over time, so you need to be consulting with your independent insurance agent annually to make sure that your policy is up to date with this information.


    Location is also an important factor when it comes to determining dwelling value in Texas. Generally speaking, homes located in urban areas like Dallas-Ft Worth, Austin, or Amarillo with higher population density tend to have higher replacement costs due to the increased cost of labor and materials. This was especially true during the high inflationary period following COVID. Since these spikes in labor costs and materials can occur unexpectedly, carrying extended replacement cost on your home policy is important. This is the precise reason that we include it in our TRUE Texas Home Insurance guarantee.

    Cost of Debris Removal

    In Texas, the cost of debris removal is an important factor to consider when determining the value of a dwelling. When an accident occurs, it's important to factor in the cost of debris removal after it has occurred. This can be costly depending on the amount of debris and materials that need to be disposed of either from site clean up of charred remains or building codes requiring you to bring the structure all the way to the ground to start over. To ensure that you have adequate coverage for these costs, make sure to review your policy and determine if these costs are covered under your insurance plan. By taking into account all costs related to repairing or replacing a dwelling in Texas, you can make sure your property is adequately protected against any unexpected accidents or disasters.

    Market Values in the Area

    When determining the amount of home insurance coverage on a dwelling in Texas, market values are NOT taken into account. Many Texas property owners that we speak with regularly do not understand why their market value on Zillow or Redfin is so different from what the cost estimate is to rebuild their home. What you can sell your home for in the Texas Real Estate Market can be wildly different than what a replacement cost estimate will be from your homeowners insurance company. Your standard homeowners insurance policy is there to make sure that your home can be replaced to your standards rather than worrying about what your current real estate market estimate will be from your local realtor.

    The Basics of Home Insurance - Property Coverage

    Homeowner’s Insurance Policy & Coverage Limits

    Homeowner’s insurance policies are a great way to protect your home and property against unexpected accidents or disasters. In Texas, it is vital to make sure you understand what your policy covers and how much coverage you have so that you do not get surprised when that storm or fire strikes your treasured family home. Typically, homeowner’s insurance policies cover the replacement cost of the dwelling, personal property, and additional living expenses if the dwelling is damaged or destroyed. Since the dwelling coverage is usually determined by multiplying the square footage of the primary residence by a rate based on location, age of your home, and finish out level of your home. This predetermined rate can vary significantly depending on whether your in Amarillo, Waco, or Midland-Odessa, so it's important to review your policy properly to determine what amount of coverage you have in case of a catastrophic event. Additionally, most policies will also include an amount for the cost of hauling debris removal in the case of an emergency such as a fire or tornado. Making sure that you have these items correct, along with extended replacement cost coverage to protect against those sudden inflation predicaments that crop up.

    It's also important to remember that the dwelling limit may not reflect market values so it's best to check with your local independent insurance agent to discuss if you are properly covered. When you begin to evaluate the driving factors for monthly cost of homeowners insurance, trying to lower your dwelling value is not a great idea to save a few bucks. you could be left high and dry while trying to rebuild your home. Let Insurance For Texans get you square today!

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    Topics: Texas, Dallas/Fort Worth, dwelling, homeowners insurance, Home Insurance Tips, TRUE Texas Home Insurance, Amarillo, Austin, basics of home insurance