What Is Coverage A on Homeowners Insurance?

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Insurance terminology can be confusing. Maybe you decided to read through your policy carefully, or perhaps you’re in the process of doing some insurance research preceding a policy renewal or purchase, and you’ve stumbled upon the term “coverage A” without having a clue as to what it means. In that case, here’s what you need to know about what it is, how it works, and how much of it you should have.

What Is Coverage A?

“Coverage A” is a fancy term to refer to your dwelling insurance, meaning the part of your policy that protects the structure of your home against certain perils. It covers things like walls, floors, doors, or anything else that makes up the structure of your house. 

The Two Types of Coverage A

Actual cash value: The insurance company will pay based on the replacement costs minus depreciation costs. In other words: They’ll pay for the current value of the lost structure, not for the replacement costs. 
Replacement cost coverage: The opposite of cash value coverage, your insurance will pay expenses based on the cost of replacing the lost structure at the moment of the incident, regardless of what it’s worth. 
Actual cash value can be a cheaper coverage to have, leading to almost instant savings. However, as you can probably tell, this coverage might not cover all the costs you need and may require you to pay for the remaining expenses out of pocket. That’s why replacement cost coverage is the most popular and the one most insurance companies offer.

How Does Coverage A Work?

Let’s say a natural disaster happened, and it wrecked 30 percent of your house. In order for your insurance to help you, you first need to make a claim, and this will most likely require you to estimate the building costs you’ll be incurring. 
An excellent way to calculate this is to find out the average building costs in your neighborhood and multiply that amount by the number of square feet that need rebuilding. This is the amount you’ll be needing for your repairs. Of course, your insurance company will need documents down the line that confirm the amount spent, but it is always good to know how much you’ll need. 
Now, in case you have cash value coverage, your insurance company will most likely determine how much they can provide for you. However, there’s a good chance it might not be near enough to what you actually need.

How Much Coverage A Do I Need?

It will depend on the costs of building your home. It would help if you tried to estimate your home’s value before you go pick an insurance policy; this will help you make sure that you’re insuring your house for the correct amount. 
And, while saving some money by choosing less coverage may seem like a good idea now, you might come to regret that decision down the line when you end up needing the financial assistance. Therefore, make sure you do your research and go with the better option for you and your home. You shouldn’t have to pay for an insurance policy that won’t cover what you need. 

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