Lowering Policy Limits Can Leave Homeowners Vulnerable
Reducing to save can be a costly mistake in light of surging construction costs
While home prices continue to fall, home repair costs across the country are on
the rise, prompting insurance experts to caution consumers against reducing
homeowners insurance policy limits. The cost to rebuild a home is generally not the
same as the sales price, or market value, and lowering policy limits could leave
homeowners underinsured.
Home repair costs increased approximately 4 percent countrywide in 20081,
despite the downward trend in the economy. That means, the cost to rebuild a home
has gone up, even though that same home may now be worth less because of current
market conditions. Reconstruction costs – or the cost to rebuild a home – are generally
more expensive than building new because reconstruction often involves the removal of
damaged materials and the need to work around existing landscaping, power lines and
other buildings. Reconstruction also factors in the current cost of building materials such
as concrete, wood and steel. Some building experts say it costs up to 30 percent more
to rebuild a house than to build it from scratch2.
By comparison, market value includes the cost of the land, which will still be
there even if a home is destroyed. Market value is also influenced by other factors such
as location and quality of schools.
There may be other ways to reduce your premium without reducing the amount
of insurance on your home:
- Ask about money saving discounts. There are many discounts
including a discount for having protective devices like security systems in
your home. Good credit can also impact your premium with some carriers.
- Consider increasing your deductible. After evaluating the amount that
could be afforded in the event of a claim, potentially raising the deductible
amount could yield significant savings.
- Combine your automobile and homeowners policies. Many
companies offer a multiple policy discount for customers who have both their home and
auto policies insured with the same company.
If you are concerned with the value on your home call our office. With some specific information on your home such as the square footage we can update the value on your home to verify your coverage is sufficient or if necessary have an onsite inspection made to confirm the property value.
1 Xactware 2 Marshall & Swift/Boekh