Your home is your most valuable asset and if something were to happen to it, you should have all the protection you need to make you whole again. A homeowners insurance policy will provide financial protection if your home is damaged or destroyed in a covered loss. The amount of insurance on your policy should be enough to cover the cost of rebuilding your home. In the insurance world, this is commonly referred to as the “Insurance Value”. The Insurance Value can also be referred to as the “Dwelling Replacement Value”.
When we work with clients to choose a limit on their homeowners insurance policy, we often hear “well we bought the house for X so shouldn’t we insure it for the same amount?”. It is important to understand the difference between “Insurance Value” and “Market Value”. The amount the house would sell for is the “Market Value”. The main difference between the two values is that the Market Value includes the value of both the building and the land. Depending on where you live, the land can increase the Market Value significantly.
You should determine the Insurance Value for your home rather than insuring your home for the Market Value. Even if your home is completely destroyed in a covered loss such as a fire, you would only have to rebuild the home since the land is still there. You cannot “rebuild” the land and it does not need to be replaced. If you insure your home at the Market Value, you most likely will overpay in premium and in the event of a total loss, the insurance company will not pay you a higher amount than the cost to rebuild the home (Insurance Value).
In some instances, the Insurance Value might be higher than the Market Value and you would not be overpaying but instead, properly insuring your home at the appropriate amount. If you live in an area where the land is inexpensive or where the housing market has dropped considerably, the Insurance Value will be higher compared to the Market Value. If you have a home with expensive design elements or custom features, the Insurance Value could also be higher compared to the Market Value. In these instances, you should still insure at the Insurance Value.
An easy way to ensure you have enough protection for your home is to keep your insurance up-to-date. Your homeowners insurance policy should reflect the current rebuilding costs including any renovations, additions, or upgrades you have added to your home. If you don’t regularly update your policy, you may not receive enough from the insurance company to fully rebuild your home in the event of a total loss. You should also consider additional protection such as Extended Replacement Cost Coverage. This coverage option will ensure that you are paid enough to rebuild your home, even if the actual costs are as much as 150% of your current insurance limit. Certain insurance companies such as the Hartford offer this option so contact our office at 760-342-0262 for more information on adding it to your policy.
Insuring your home at the Insurance Value can potentially help save you money on your homeowners insurance premium. We can work with you to help save you money in other areas as well. If you bundle your car and home insurance with the same carrier, you can often receive a discount for combining coverage. You can also reduce your premium by raising your deductibles. Just note that you’ll be paying a higher out-of-pocket cost (deductible) in the event of a loss but you will be saving money overall on your annual premium. One last but essential thing you can do to save money on your insurance – keep an open relationship with your independent insurance agent and advise us of any changes to your life. If you purchase a new car, are thinking about moving, or change jobs, contact Bill Brian Insurance Agency so we can make any necessary adjustments to your existing policies and suggest revisions to keep saving you money while protecting what you value most.