2013 was a good year for the real estate industry. The price of homes increased by more than 20% in certain hotspots, and experts predict that home prices will continue to rise in 2014 – albeit, at a more moderate rate of 3-5%. This is great news if you’re a realtor or if you’re trying to sell your home. But you might be asking yourself, “Does this mean I need to reevaluate the insurance coverage on my home? Does this mean I have to pay higher house insurance premiums?”
Market Value vs. Replacement Cost Value
Before we answer this question, you need to understand the difference between “market value” and “replacement cost value.” Market value is how much you should be able to get for your home if you were to sell it. This value is based on location, the value of the land, and other real estate trends. On the other hand, replacement cost is what it would cost to replace your home if it was completely destroyed – if you had to rebuild it from the ground up.
Why Did You Purchase Homeowner’s Insurance?
Now think about why you purchased your homeowner’s insurance. Wasn’t it to protect you and your family against unforeseen disasters? If a storm rips the roof off your home, you want to be able to replace it. If your house is completely destroyed by a fire, you need to have the resources to rebuild it, so you and your family have a place to live. Plus, most disasters that can affect your home don’t affect the land itself. If a tornado blows through your home or a tree lands on your roof, the value of the land your home rests on isn’t affected.
Therefore, you should insure your home for what it would cost to repair or replace it, not what someone else would pay for it. So, if the market value of your house increases because of the real estate market, there’s no need to re-evaluate your homeowner’s insurance. Plus, most homeowner’s insurance policies have an inflation guard that automatically increases the value of the property by 3-5%.
When Considering Insurance on Your Home, Remember the Upgrades!
Now, if you make improvements to your home, such as an addition or a major renovation, it can affect both the market value and the replacement cost. In that case you should contact your insurance agent, so you can make sure that your entire investment is protected in the event of a disaster.
If you’d like to take a look at your homeowner’s insurance to be certain your home has sufficient protection, contact American Insuring Group at (800) 947-1270 or (610) 775-3848. We'll help you get the right level of quality insurance at the right price, quoting several competing insurance providers in the process.
