Understanding Dwelling Coverage Customization Options on your Home Insurance Policy

Dwelling coverage customizations can play an important role in future claims – especially in larger claims like fire and water damage insurance claims, which could lead to total loss insurance claims.

To help you understand dwelling coverage customization options, here’s an overview of certain dwelling coverage customization options and how they work:

Inflation Clause: You might see an inflation clause on your homeowners insurance policy. The inflation clause protects the value of your insurance payout from inflation. If you bought a $250,000 homeowners insurance policy 12 years ago, for example, then the value of that policy is much lower today because of inflation. You still get $250,000 in a total loss, but the $250,000 buys you less stuff today than it did 12 years ago. In this situation, the insurer might pay you $250,000 plus an extra amount to cover inflation.

Guaranteed Replacement Cost: Guaranteed replacement cost policies ensure the insurer will cover the full replacement cost of your home. Replacing your home may cost more than the home was worth in the first place. Even in this situation, your insurer needs to pay because you signed a guaranteed replacement cost policy.

Extended Replacement Clause: With an extended replacement clause, you get additional coverage and replacement costs up to a certain percentage of the value of your home. You can choose an amount like 25%, 50%, 75%, or 100%. The insurer will increase your payout if costs exceed this limit.

Cash Out Clause: Some home insurance policies have a cash out clause. With this clause, you can take the money from the insurance payout and use it however you like. Instead of being forced to repair or rebuild your home, for example, you can use the cash out clause to take a cash settlement and rebuild elsewhere.

Based on how you customize these dwelling coverage options on your homeowners insurance policy, your policy could cover you in much different ways after a fire damage insurance claim, water damage insurance claim, or similar loss.