How Does the Increase in Home Values Impact Your Home Insurance?

Written By Charlotte Insurance on January 13, 2022. It has 0 comments.

the exterior of a home with an increased value owned by people wondering if they need to increase their home insurance

The news is inundated with the fact that home values are on the rise. You may have even received a few postcards and flyers encouraging you to refinance or even sell your home and make some serious cash.

With values going up, you may wonder if you have enough home insurance to cover your home. Here’s what you need to know.

Understanding Home Values vs Home Insurance Limits

The most important thing to understand is that your home insurance policy only considers one thing with regards to the structure of your home: the cost to repair or replace, not your overall home value.

Home values are based on a myriad of factors: the size and type of home you have, the land it’s on (including the size of the lot), the neighborhood you live in, surrounding amenities and schools, and what someone is willing to pay for a home.

None of that factors into your home insurance policy.

The only question to consider when choosing your limit is this: How much would it cost to replace my home from the ground-up if it was destroyed?

Typical home replacement is meant to get your home back to where you were in terms of materials, amenities, and structure. The older your home or the more customized it is, the more expensive this can be.

How to Know if You Need to Increase Your Home Insurance

The most important number to determine if you need more homeowners coverage is the cost-per-square-foot to build a home like yours. If that cost has gone up since you purchased your home or insurance policy – and with supply chain issues and staffing shortages, prices have definitely gone up since 2020 – you may need to increase your homeowners policy.

Here are a few factors to consider:

  • Did you refinance your home when values went up and used the cash to remodel your home? It may cost more to replace your home now than it did before because of the upgrades.
  • Did you make upgrades to your home pre-2020 or before prices went up? It will definitely cost more to replace or repair your home now than it once did.
  • Is your home more than a decade old? The older your home, the more it will cost to rebuild it – and your policy limits need to reflect accurate replacement pricing.
  • Have you lived in your home for several years, even without upgrades, and haven’t looked at your insurance policy since you bought your house? You definitely need to look at your policy limit again.

To figure out if replacement prices have gone up significantly for your home, you can use an online calculator to help estimate your cost-per-square-foot. Or you can talk to a home builder in your area. If you live in a custom-built home or you’ve done a lot of remodeling over the years, you’ll likely need help from a contractor to figure out the cost to rebuild.

Once you have the cost-per-square-foot number, multiply it by the square footage of your home. That’s your cost to rebuild. Your homeowners insurance policy limit should at least match it.

Think you may need to increase your home insurance? Haven’t thought about your policy in years? Contact Charlotte Insurance today. We’ll provide free quotes and answer any questions you may have to make sure you have the right coverage for your home.

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