Real estate prices are on the rise. Some prices even climbing as much as 20% last year. A recurring question among homeowners seems to be, do higher sales values mean you need to increase the amount of insurance coverage on your home?
There is little doubt that the Real Estate Market is coming back. According to Vincent Gould of the Vincents Realty, “Nationally we will grow approximately 5 % in the next year.” Home values are currently doing fantastically well. The national market appreciated 6 percent in the last 12 months. This number is double the traditional 3 percent a year norm.
With that being said how will this affect your homeowners insurance rates? Do homeowners need to increase their coverage with home values rising?
These promising numbers and values are great in one aspect for homeowners, but in others it presents a concern. If the value of your property increases, will you be forced to increase home insurance coverage in order to keep pace and adequately protect your investment?
Not necessarily. It is important to consider the difference between “market value” and “replacement cost value”
- Market Value – This refers to how much your house is worth if you were to sell and is largely dependent on real estate trends
- Replacement Cost Value – This value refers to the amount it would cost to rebuild your home from the ground up if declared a total loss
Home insurance is built so that you may insure your home for replacement cost, not the value your home is worth. It is also important to know that if your home is the victim of a peril such as a tree collapsing, tornado, etc. in most instances this would not result in the value of your land depreciating.
There are instances when an increase in property value will result in additional homeowners insurance considerations
Making a major renovation such as adding on a room, kitchen improvements, building a swimming pool, or anything that would require a permit, these are all instances where you might want to review your coverage an possibly attain additional coverage.
Inflation Guards
An additional piece of information to consider when is the fact that many homeowners insurance policies have Inflation Guards built into the policies. These inflation guards automatically increase property annually, usually 3-5%. This means that rising costs of inflation and predicted trends for rising home values have already been accounted for. For more information or if you have any questions feel free to contact an independent insurance representative today from V.W. Gould Agency, Inc. by calling (386)734 3970.
