If you have landscaped your yard, put in a pool, repainted or re-sided your home, installed a new roof, windows or flooring, for example, you have invested in your home and probably increased its resale value. Have you thought of your homeowners insurance, though? Your insurance policy does little good if you don’t update that, as well.
As you improve your home, you have invested time, effort and money into your abode. Whether you intend to put the house on the market soon or not, you must consider its replacement value. Hopefully, this isn’t tempting fate, but what if your newly improved home was destroyed by fire or a flood? Will your current policy replace it as it currently is or as it was 10 years ago?
According to one leading provider of replacement cost valuation, up to two-thirds of homeowners fail to update their home insurance to reflect improvements, additions and even appliance replacements. Those under-insured property owners aren’t careless with their money; they know the value they add. They don’t often think of the after-effects beyond an increase in property taxes. Some of those under-insureds discover they can afford only 82 percent of the rebuilding costs, simply because they forgot to update their insurance.
When to Review the Policy
If no major improvements are completed, review all your insurance, including home owners insurance, annually. Inflation and depreciation can both influence the value of your home significantly and often. Ensure you have adequate protection to fully replace your home and your belongs in case of a catastrophic event.
If you conduct a major improvement, such as a new bathroom or adding another bedroom or improving the basement, always conduct an insurance review to reflect the current conditions. Be sure to include any changes to outbuildings, such as your garage or carport or a storage shed as well.
Why Review for Replacement Cost?
The price you pay or paid for your home is deferred through many years of payment and occupancy. If for no other reason, insure your house for its replacement value, for inflation is far higher now than it was even just a few years ago: It’s going to cost more to rebuild your home than it was to build it or than its resale value.
The price of materials – wood, copper, shingles and even insulation – has escalated while market prices for homes have fallen. Some areas of the USA are recovering more quickly than others, but housing prices are not what they used to be. Your mortgage loan payment may stay the same, but inflation doesn’t.
How to Evaluate Your Home Insurance
If the improvements and renovations have increased the worth of your home or it no longer has replacement value noted, definitely confer with an insurance professional. Even if quality material is found, the cost of the materials overall will outstrip your insurance value.
Safety improvements may qualify you for discounts and should never be overlooked.
Keep track of smaller improvements, like a new window or a different counter top or even a new coat of paint in the living room. When those aggregate totals nears that 5-percent difference, it’s time to pull out the policy and re-evaluate the level of your coverage.
Don’t get left behind or undervalued: Evaluate your home owners insurance routinely and after major projects.
Written by Jaye Ryan, a freelance author who likes writing about financial management and protection for Octopus Loans.