APRIL 2022
@HOME N E W S L E T T E R
Property Value and Homeowners Insurance DO RISING PROPERTY VALUES MEAN YOU NEED TO INCREASE YOUR INSURANCE COVERAGE? BY CINDY HEDIN
B
ISSUE 126
ecause the homeowner policy will only cover replacement cost in the event of a catastrophic loss, your coverage should be based on the value of the actual loss that can be replaced, which does
not include monetary payment for the location or plot of land where your home is located. Further, many homeowner policies have provisions referred to as inflation guard coverage that compensate for upward changes in the value of the real estate market and inflation by adjusting the estimated value of your policy by approximately 3-5 percent annually. However, you should not assume that your policy includes this provision without reviewing your policy and/or talking to a representative from your insurance company.
Situations Where Increased Market Value Merits Increasing Policy Limits As a general rule, an increase in property value due to a change in the real estate market can take place without requiring an increase in your homeowner insurance coverage. However, there are situations where you should review your policy limits and make adjustments. If you make improvements or additions to your home that make a significant impact on its market value, this might justify revisiting the limits of your coverage. When homeowners build an extra bedroom, create a second story or install a swimming pool, they are increasing the replacement value of the home enough to justify adjusting policy limits. Similarly, you may remodel a kitchen using more expensive appliances and materials. This type of improvement might also merit having the replacement cost of your home recalculated. Rising construction costs may also merit increasing your coverage. Your insurance broker or agent should be able to help you calculate the proper amount of coverage for your home. Labor and material costs for rebuilding homes generally increase over time, as do the costs for all goods and services. However, the rate of inflation in the cost of labor and materials required in residential construction are much higher this year than normal. As part of the process of renewing your homeowner’s policy, you would be well advised to contact your insurance agent and request a new replacement cost estimate on your home and also to be sure that they have accurate and updated information about other residential property you may own.