If you’ve been keeping an eye on the real estate market at all over the last few months you know that prices have skyrocketed. Inventory is low and demand is high which is has caused home prices and values to rise significantly. Even if you aren’t in the market for a home you may find that the increased home costs have raised the value of your home and your home may be worth more than ever.
How does the current value of your home affect your home owners insurance? Should your policy follow the ever changing valuation? Not necessarily.
Home owners insurance usually follows the replacement cost valuation. Replace cost is the figure your insurance company thinks it would cost to rebuild your entire home to its current likeness, in the case of a total loss. Sometimes when you get your homeowners policy renewal you may find the replacement cost of your home has changed from previous years, this usually has more to do with rising costs or building materials and labor than a change in the actual value of your home or the housing market. Most homeowners policies are written with a built in buffer ( usually 120% or 125% ) to cover any unforeseen increases or unexpected increases in labor or materials costs such as a shortage of workers due to catastrophic amounts of damage to a region.
If you have made changes to your home that increase it’s value, like finishing a basement or building an addition you should let your insurance company know so they can make sure your replacement cost valuation includes the changes.
If you have questions about what your homeowners policy covers or the replacement cost limits, contact your customer service representative so they can review your policy with you.