Homeowners planning to expand or renovate their homes and those looking for new homes are experiencing sticker shock as the U.S. economy rebounds.
Is your insurance policy keeping pace with your home’s value? Prices for new and existing homes are rapidly rising, fueled in part by the rising cost of materials and labor. The cost of framing lumber has risen 21% in the past year, according to an Oct. 26, 2012, article in the Wall Street Journal. The article also reports that makers of drywall, which is used to build interior walls, have boosted prices 25% since January 2012.
Even if you’re not planning to build a new home or make any changes to your existing home, your insurance policy may not be keeping pace with your home’s value.
A common belief is that if a home’s market value has dropped, then it’s insured value—and, therefore, insurance premiums—should be lower, too.
But many homeowners are unaware that there is often a big difference between market value (the price at which a home may sell today) and replacement cost (the price to repair or rebuild a home if it is severely damaged).
To ensure you’re adequately covered in the event of a loss, a replacement cost home appraisal should be updated every three to five years, and the policy’s annual construction cost adjustment should be maintained. Significant home remodeling projects, renovations, upgrades or additions should be documented and reported to insurance carriers as they will likely affect insurance coverage.
Is your home adequately covered in the event of a major loss? Knowing the replacement cost can help you avoid an unpleasant surprise.