The short version
Dwelling coverage (Coverage A on your policy) should equal your home's rebuild cost: square footage × local construction cost per square foot, adjusted for finishes. In 2026, the U.S. median rebuild cost is about $280 per square foot (NerdWallet/First Street analysis) — roughly $410,000 for a typical home — with state medians ranging from ~$248 (Nebraska) to ~$331 (Louisiana) and high-cost metros running $350–$500+. Market value is the wrong number: it includes land (which doesn't burn down) and market froth (which doesn't affect lumber prices). And because construction inflation moves faster than policy limits, add extended replacement cost coverage (an extra 10–50% buffer) no matter how carefully you calculate.
Quick dwelling coverage calculator
Educational estimate from 2026 published rebuild-cost data — not an appraisal. Your insurer's replacement-cost estimator (which factors roof type, foundation, systems, and local labor) is the number to actually set the policy with; treat this as your sanity check on it.
Why market value, purchase price, and Zestimate are all wrong
- Market value includes land. Land survives a total loss. In hot markets, insuring at market value means over-insuring; in cheap markets with high construction costs, it means dangerously under-insuring.
- Rebuild ≠ new construction, either. Rebuilding a specific house on a specific lot adds demolition, debris removal, site prep, and matching existing details — costs a builder starting fresh in a subdivision never sees.
- The number rots. Home insurance costs rose 33% from 2020–2023 with more increases projected, driven by exactly the labor and materials inflation that raises rebuild costs. A dwelling limit set at purchase and never revisited drifts underwater — Colorado's insurance department modeled Marshall Fire-area rebuilds at $250–$350/sq ft and found underinsurance gaps of roughly $99,000–$243,000 per home.
The three-step calculation, properly
- Base: finished square footage × local per-square-foot rebuild cost. Get the local figure from your insurer's estimator, a local builder, or state DOI publications — the national $280 median is a starting anchor, not your answer.
- Adjust for what standard formulas miss: custom millwork or plaster in older homes, high-end kitchens/baths, unique materials, detached structures (covered separately under Coverage B, typically 10% of dwelling), and code-upgrade costs for older homes — add ordinance or law coverage if your home predates current codes, since insurers don't pay for code compliance by default.
- Buffer the estimate: add extended replacement cost (pays 10–50% above your limit if rebuilding runs over — the cheap fix for estimate error and post-disaster price surges) or guaranteed replacement cost (pays whatever it takes; pricier and not offered by all carriers, but the gold standard in wildfire and hurricane territory).
Then re-run the check at every renewal. Many policies include an inflation-guard adjustment, but 2020s construction inflation outran most of them — a 5-minute annual check against current per-square-foot costs is the fix.
Comparing carriers? Compare their estimators too
Different insurers' replacement-cost formulas can differ by tens of thousands on the same house — one published homeowner example found an $80/sq ft ($200K) gap. Getting 2–3 quotes doubles as getting 2–3 rebuild estimates.
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