How it works
Home insurance covers rebuild cost, not sale price — the land is not replaceable, so insuring your home's market value overpays. The engine multiplies your square footage by a local rebuild cost per square foot, adjusted for build quality, to get the dwelling figure. Standard policy structures follow as percentages of dwelling: 10% for other structures (garage, sheds, fences), 50% for personal property (your contents on a named-peril basis), and a default liability limit of $100,000 with loss of use running around 20% of contents. The coverage number is only ever an estimate and hides two classic gaps: contents are often underinsured because 50% of dwelling rarely tracks what a household actually owns, and rebuild costs vary wildly by region — a $200/sq ft assumption is fine in the Midwest and low for coastal metro areas. Run the numbers before talking to an agent, so you can tell underinsurance from a fair quote.
Formula
Dwelling = sq ft x cost per sq ft x quality multiplier | Other 10% | Contents 50% | Liability $100k
Tips
- Insure to rebuild cost, not market value — the difference can be tens of thousands of dollars of waste.
- Raise contents coverage to what you would actually need to replace, not a formula percentage.
- A replacement-cost endorsement for electronics and jewellery beats schedule limits.
- Re-run after renovations — kitchens and additions silently invalidate old dwelling numbers.
Frequently asked questions
- Is insurance based on market value or rebuild cost?
- Rebuild cost. Market value includes the land, which is never replaced. Rebuild cost is the construction price of the structure — typically lower than market value in expensive cities and sometimes higher in rural areas with scarce labour.
- How much dwelling coverage do I need?
- Multiply your home's square footage by the local per-square-foot rebuild cost, adjusted for finishes. Your insurer's estimator does this too — using your own figure lets you audit their number for quality and square-footage mistakes.
- What is loss of use coverage?
- It pays the extra cost of living elsewhere while your home is repaired after a covered loss — hotel, rent, meals. It typically runs about 20-30% of dwelling coverage and is one of the most-used and least-understood sections of a claim.
- Should I insure contents for replacement value?
- Yes — replacement-cost coverage pays what new items cost, while actual-cash-value pays only the depreciated amount. The premium difference is small and the claim difference is often 2-3 times on older items.