Why is my home being insured for more than it’s market value?

Why is my home being insured for more than it’s market value?


While the market value on homes around the country continue decreasing, homeowners are left to question why their homeowners insurance premiums are not. The rise and fall of so many home prices can contribute to a few different variables, some which include; the current lending crisis; housing starts and shortages; forclosure rates; and even the location of the property and the land it sits on. What homeowners don’t realize is that the reconstruction of a home costs more than new construction.

With costs increasing, many are taking steps to save on their homeowners insurance. But what some don’t realize is that reducing the amount of coverage to coincide with the lower market value is not the best step to take; this could leave the house underinsured.

Homes are insured for their rebulding cost, not the market value on the home. Construction is a large industry, and the cost of materials and rebulding proceedures has risen due to recent natural disasters like Hurricane Katrina. Getting accurate replacement cost estimates is important when it comes to homeowners insurance.

If your home were to go up in flames tomorrow would you want the amount the market says your home is worth or the actual rebuilding amount? Like Scott Spencer says in his “Insurance to Value” article, “Homeowners insurance premiums are not based on the current resale value of the homes, but on the cost to replace them.” Keep this in mind when questioning the premium on your current homeowners insurance policy.

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