Jeffrey Wade
Homeowners should regularly review their insurance policies to ensure they have adequate coverage in case of damage or destruction to their homes. While a home's market value may fluctuate, the replacement cost is what insurance premiums are based on. This refers to the cost of rebuilding your home from scratch, which may increase due to factors like rising material and labour costs. Therefore, it is essential to adjust your coverage as needed to avoid being underinsured and facing significant out-of-pocket expenses in the event of a disaster. To increase your homeowners insurance value, you can consider options like raising your deductible, purchasing endorsements for additional coverage, or reviewing your policy with an agent to account for any renovations or unique features that may impact the replacement cost.
| Characteristics | Values |
|---|---|
| Home replacement cost | The replacement cost of a home may differ from its property value. The replacement cost is the cost to rebuild your home from scratch in case of a total loss. |
| Building supply costs | The cost of building supplies, such as lumber, steel, and roofing materials, can increase the replacement cost of a home. |
| Market real estate values | Rising market real estate values can impact the replacement cost of a home. |
| Home renovations | Renovations such as upgrading the electrical system may lower insurance premiums, while finishing a basement or building a pool may increase the replacement cost of a home. |
| Home location | The location of a home can impact the risk of natural disasters such as fires, tornadoes, or floods, which can affect insurance rates. |
| Home features | Unique features such as whirlpool tubs or designer cabinetry can increase the value of a home. |
| Inflation | Inflation can impact construction costs and the replacement cost of a home. |
| Home insurance deductible | Increasing the deductible can lower monthly premiums, but it means paying more out of pocket when filing a claim. |
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What You'll Learn
Understand the factors that influence insurance rates
Understanding the factors that influence insurance rates is crucial when considering how to increase homeowners' insurance value. While the market value of your home may fluctuate, the replacement cost remains the primary basis for your insurance premiums. This cost includes the price of building supplies and labour to repair or rebuild your home in the event of a total loss. Therefore, keeping your policy updated with any renovations or remodelling is essential, as these changes can increase the replacement cost value of your home.
Location is another critical factor in determining insurance rates. The disaster risks in your area, such as fire or tornado risk, can significantly impact your premiums. Using free online resources like First Street or Climate Check can help you assess these risks. Additionally, unique features or attractive nuisances on your property, such as a swimming pool or a trampoline, can lead to higher insurance costs or eligibility restrictions.
The condition and characteristics of your home also influence insurance rates. The age of your home, the state of major systems (HVAC, plumbing, electrical), the roof's age and condition, the building materials used, and the square footage all play a role in calculating dwelling costs. Insurers may also consider the uniqueness of your home, such as any custom fixtures or architectural details, as these could add to the replacement cost.
Furthermore, it's important to be aware of how inflation and construction costs can impact your insurance rates. Inflation guard coverage is a feature offered by some homeowners' policies, automatically increasing your insurance coverage by a small percentage each year to account for inflation. However, in a hot housing market with rapidly rising construction costs, it's prudent to periodically review your policy to ensure your coverage is sufficient.
Renovations and upgrades to your home can also affect your insurance costs. For example, upgrading your electrical system may reduce your premiums, while finishing a basement or adding a swimming pool could increase them. Discussing these changes with your insurance company is essential to avoid issues when filing a claim.
Finally, it's worth noting that your deductible can influence your insurance rates. While increasing your deductible may lower your monthly premium, it means paying more out of pocket when filing a claim. Therefore, it's generally recommended to set a deductible that you can comfortably afford to pay at short notice.
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Review your policy to ensure adequate coverage
It is important to review your homeowners insurance coverage at least once a year. This is because the cost of rebuilding your home may exceed your insurance coverage limit due to factors beyond your control, such as an increase in the cost of building materials and labour. For example, the cost of lumber jumped dramatically in 2020 and 2021, adding about $36,000 to the average cost of rebuilding a home.
Therefore, you should review your policy to ensure that you have adequate coverage to replace the structure of your home. This is especially important if your home has unique, handmade architectural features, as the replacement cost is estimated to be significantly more than the market value. You can calculate the replacement cost by multiplying the cost of new builds in your area per square foot by the square footage of your home.
Additionally, you should review your policy to ensure that you have sufficient coverage for your belongings. Creating a home inventory can help catalogue your belongings and ensure accurate valuation of your possessions, so you can receive fair compensation in the event of a covered loss.
You can also review your policy to identify areas where you may be over-insured and reduce coverage in those areas. For example, you may be able to reduce coverage on other properties or personal properties such as a car. This can help keep your premiums as low as possible.
Finally, it is important to shop around and compare insurance companies to find the best price and coverage for your needs. You may be able to get a better rate or a discount by bundling your insurance with one company or by taking advantage of memberships in certain organizations.
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Compare quotes and shop around
Comparing quotes and shopping around is a great way to increase your homeowners insurance value. It is a good idea to start with your car insurance provider as bundling your policies can get you a discount. However, this may not always be the best or the cheapest option. You can also approach independent agents and brokers who work with multiple insurers and can offer a wide range of homeowners insurance quotes to compare. While independent agents and brokers work on commission, they try to provide good customer service. However, they may also push you towards more expensive policies. Independent brokers may also charge a broker's fee, which they must disclose to customers.
You can also use online insurance comparison tools such as Insurify, Policygenius, and Zebra to compare quotes from hundreds of providers simultaneously. These tools save time and money and are reliable, but be sure to read the fine print to understand exclusions and inclusions. When using these tools, ensure you enter the same information about your home, coverages, and deductibles for each company.
You can get a quote directly from a captive insurance agent, either online, over the phone, or in person. However, these agents typically can't offer comparison quotes and may be more expensive. Shopping around for quotes won't affect your credit score, and you can do it at any time, even if you're not in the home-buying process. You can also switch carriers at any time without penalty.
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Increase deductible to lower premiums
Increasing your deductible is a way to lower your insurance premiums. The deductible is the amount you pay out of pocket before your insurance pays your claim. The higher your deductible, the lower your insurance premiums will be. For example, in Maryland, homeowners save $74 a year on average when increasing from a $500 to a $2,500 deductible. Similarly, Oklahoma, where home insurance rates are much higher, has the largest average savings at $1,228 a year. On average, raising your deductible will save you $408 a year.
However, it is important to ensure that you can afford the deductible if you need to file a claim. You should keep enough money in an emergency fund to self-insure up to the deductible, or even a few hundred dollars more. The average homeowner makes a claim only once every 10 years, so the risk of self-insuring may not be as high as you think. You could take the money you save in premiums and add it to your emergency fund each year so that you’re prepared when you do have a claim.
Increasing your deductible can be a smart financial decision, but it is a risky move for financially-stressed customers who are increasing their deductibles out of necessity. If you cannot afford the deductible, you will have a problem if you need to file a claim.
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Understand endorsements and additional coverages
Endorsements are optional coverage types that you can add to your existing homeowners policy to tailor it to your needs. They are also referred to as riders or amendments. Endorsements can be used to provide additional coverage for specific perils that are often excluded from a standard home insurance policy, such as earthquakes, or to include coverage for specific possessions that would not usually be financially protected, such as valuable art, jewelry, or sports equipment.
Some common endorsements include:
- Flood insurance endorsement: This covers your home and belongings against water damage caused by flooding, including high tides, hurricane storm surges, heavy rain, and other sources of natural flooding.
- Identity theft coverage: This helps pay for costs associated with recovering your identity, but it does not include monetary reimbursement.
- Matching materials coverage: This endorsement is useful for older or historic homes as it covers the cost of replacement materials that match the home's original quality and type.
- Water backup coverage: This endorsement covers water damage caused by water backing up into the home from a sewer, sump, or drain.
- Sinkhole coverage: This provides protection for damages to your home and personal property inside the home caused by sinkholes.
The cost of endorsements varies, with some charging a flat fee and others charging based on the value of the items being insured. It's important to note that adding endorsements will typically increase your premium, so it's a good idea to compare carriers before purchasing.
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Frequently asked questions
You should review your homeowners insurance policy with your agent at least every three years, but annually is best.
You should consider the current cost of building supplies and labour, as well as the unique features of your home, such as any custom fixtures or remodelling. You should also consider your home's fire risk and whether you have made any renovations, such as upgrading your electrical system or finishing your basement.
You can increase your deductible to lower your monthly premium, but this should be approached with caution. You can also reduce coverage on other property, or purchase endorsements for additional coverage on valuable personal property.
