Do I Need More Insurance if My Home is Worth More?
Zillow reported that home values rose about 5 percent nationwide in 2013 and some local markets even saw increases of 20 percent. And at the end of last year, the company predicted home values would rise 4 percent in 2014. At times when we are seeing increases like this, homeowners are happy to see they’re seeing a better return on their investment. But with this comes the question of whether you need to get more homeowners insurance to cover the increase.
Here’s what you need to know to make the decision about your home insurance coverage when your home’s value increases.
<h3?Factors That Affect Home Value
Demand: Demand is the primary focus for real estate prices and one of the most important factors in calculating how in-demand your home is relies on its location. Is your home in a trendy neighborhood located near entertainment and shopping venues? Is it in a well-regarded school district? The desirableness of a location can change when new entertainment complexes are built and school districts are redrawn. Location greatly impacts the demand of a home, which in turn affects the home value.
Upgrades: If you add an additional room to your home or significantly renovate your kitchen, you may increase the value of your home. Adding upgraded appliances and new space to your home makes it fit your lifestyle and mean more to you. Not only that, but it makes your home more desirable to buyers, giving you the opportunity to increase your selling price.
What Is Covered By Home Insurance
When you purchase home insurance, your coverage limits do not reflect the total price of your home or the land that comes with it, because most home destruction leaves the land untouched. The policy only covers your largest investment to rebuild in the case of destruction by an event your policy covers.
That amount depends on the replacement value of your home, which includes factors such as its size and local construction costs. It also depends on the amount of risk you and your home present to the insurance company, such as if your home is in a location known for natural disasters.
When You Need to Buy More Insurance
You need to buy more insurance when the replacement value of your home increases. You probably don’t need more insurance if the market value of your neighborhood increases, as this doesn’t affect the cost of repairing your home.
The replacement value of your home can change in two ways. If demand for construction booms in your city, local construction costs may increase. We recommend occasionally running these numbers on a coverage calculator. Renovating or adding on to your home can add tens of thousands of dollars to your home value. Therefore, you should increase your home insurance coverage to reflect the increased replacement cost.
How to Buy More Home Insurance Coverage
If you are happy with your current home insurance company and think the new premiums are at a reasonable price, then you should stay with your provider. Otherwise, shop around your new replacement cost for several different coverage options. Each provider uses different factors to calculate your premium.
With more insurance comes a higher premium, but you have ways to save and reduce the burden of the higher cost. Some providers offer discounts, such as purchasing additional auto or life insurance policies or installing deadbolt locks or other home features. You can also raise your deductible to decrease your premiums.
As your home value fluctuates, it’s important to stay on top of your home’s replacement cost. Re-examine the numbers at least once a year and after any major developments to your home or neighborhood to ensure you have enough coverage.
While it may be easier to leave your home insurance policy on auto-pay, keeping up with changes means having optimum protection for the full value of your home should something destroy it. If you have questions about your home insurance coverage or are shopping around for new coverage, give us a call today.
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