Do You Need More Coverage if Your Home has Increased in Value?

Real estate values have increased over the past year and are projected to continue increasing throughout 2014, albeit at a slower rate. But what do these rising values mean for your home insurance premium? Many homeowners are concerned that a home with an increasing market value will require more insurance coverage, therefore raising premiums. But that’s not necessarily the case.
Homeowners Insurance

You do not need more coverage if…

While the market value of your home may have gone up, the replacement cost has remained static. What is the difference? The market value is the amount your home would be worth if you put it up for sale, including the value of the land on the lot and any value added from views or proximity to schools and parks. The replacement cost is the amount your home would cost to rebuild from the ground up if a covered event, such as a fire, were to completely destroy it.

When purchasing homeowners insurance, you should consider what it would cost to replace your home, not what it’s worth on the market. Why? The value of land and location are irrelevant when rebuilding or repairing damages after a loss, which is the primary function of home insurance.

You may need more coverage if…

It’s a good idea to notify your independent agent if you make home renovations or improvements. New hardwood floors or a redesigned kitchen can change the replacement value of your home, which is what your homeowners policy is designed to protect. Small changes, like new toilets, may not make much of a difference, but larger changes, like adding in a swimming pool, should be accounted for in your coverage limits.

Home renovations that are completed with higher priced materials will change the replacement cost of your home. Also, if the price of construction in your area is inflated, that could also affect the replacement cost. Either reason gives you cause to speak to your agent about your coverage limits.

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