Should You Lower Your Insurance If Your Home Value Falls?

With the housing market cooling off around the country, your home may be worth less than when you bought it and insured it. Since you may have bought insurance for a house with a higher market value, you may be thinking you should reduce your insurance coverage and save some money. But before you get home insurance quotes, remember that home insurance isn’t meant to compensate you for your home’s original price, but rather its current replacement cost.

Homeowners insurance covers the cost to rebuild your home and replace your personal belongings. Here’s what you need to consider before you change your homeowners policy:

• Review your home insurance policy every three to five years to make sure your policy gives your enough coverage to rebuild your home, if it is destroyed or severely damaged. You may be surprised to learn most homeowners are under insured, despite the slowdown in the housing market. If you determine that you don’t have enough coverage, get home insurance quotes.
• 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.
• Don’t assume that the cost to rebuild your home fell, even though home prices in your area may have declined. To get an estimate of how much it will cost to rebuild your home, consult your local builders association or a reputable builder. Also check with your insurance agent or insurance company. And be aware that building costs can increase with inflation or after a disaster, when contractors and materials are in demand.
• Take the guesswork out of estimating your home’s replacement cost by adding an inflation guard clause to your policy. This automatically adjusts your coverage when you renew your policy to reflect current construction costs in your area. Your home’s building materials — brick, wood, stucco, stone, etc. — will also affect your rebuilding costs.
• Consider buying extended-replacement coverage, which covers the difference if the price to rebuild your home exceeds your limit. Your policy probably already includes some extra coverage, but you can buy more. This gives you protection against a sudden increase in construction costs after a disaster or other market-changing events.
• 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. Some insurers include full building-code coverage. If you policy doesn’t provide this protection, you can increase your coverage by buying an endorsement called a building-code upgrade.

Remember when you buy a homeowners policy, you’re insuring the structure of your home and your personal belongings in your home. Once you have determined the best coverage for your family’s needs, you’re ready to obtain home insurance quotes. Call agents in your local area, contact several insurance companies directly or use InsuranceQuotes.com to instantly get competitive home insurance quotes from the nation’s leading insurance providers. Take the time to protect you and your family today.