If you’ve been keeping an eye on the real estate market at all over the last year you probably know that home values all over the country have skyrocketed due to low inventory and high demand. For many of us our homes may be worth much more today than they have ever been in the past.
Now more than ever the value of your home may not match up with the valuation on your home owner’s policy. Is that enough coverage? Should your policy change with your homes ever increasing valuation?
Your homeowner’s policy is written with a replacement cost valuation. Replacement cost is figured based on what the insurance company thinks it would cost to rebuild your entire home in its current likeness in the case of a total loss. This is why when your agent first quotes your policy they ask questions about fixtures, custom features and things like types of flooring.
When your policy renews if you notice an increase in your premium that has more to do with current costs of building materials and labor costs than what your house would sell for if you put it on the market. Most homeowners’ policies are built with a buffer built in to them (usually 120%-125%) to cover any unforeseen increases in labor or materials, such as a shortage due to catastrophic amounts of damage to a region.
Many people in 2020 found themselves at home more and looking around their homes seeing projects and updates that they wanted to make. If you are among those who did good size renovations, perhaps finishing a basement or renovating a bathroom or kitchen it is advisable that you inform your insurance agent about those updates so that they can make sure your home valuation still coves your home replacement cost.