Friday, June 18, 2010 10:51:01 AM

If the value of my home falls, should I reduce my home insurance coverage?

If you bought insurance for a house with a higher market value and then the value dropped, you may be thinking you should reduce your insurance coverage to save money. But before you get a new quote, remember that home insurance is meant to cover current replacement costs, not your home's original price.

You should review your home insurance policy every three to five years to make sure your policy gives your enough coverage to rebuild your home at current costs. Don’t assume that the cost to rebuild your home fell, even though home prices in your area may have declined.

Keep in mind that you're not insuring the market value of your land, just the cost to rebuild your home, garage and any other buildings on your property. Even if land prices have plummeted in your area, building costs may have remained the same or even increased.

Be aware new building codes may make it more expensive for you to rebuild your home. New standards may require changes in your home design or building materials, both of which can cost more. Also, many municipalities change their building codes after a disaster.

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Our Insurance Expert

Laura Adams is a personal finance expert and award-winning author who is Senior Insurance Analyst for InsuranceQuotes.com. She represents Bankrate Insurance’s web properties in the media and works as an advocate to make sure consumers protect their financial futures by having the right kinds of insurance.

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