In last week’s post, 4 Reasons to Part Ways With Your Home Insurance Carrier, one of the points I discussed was whether you, the homeowner, should look further to get adequate coverage.
Today, the question is how do you know when you need more home insurance? Typically, you’ll ask yourself this question when you perceive that your home value has increased. And the answer to that question is, “It depends.” Let’s find out on what.
If the value of your home increased due to market forces (i.e., a recession ending) then the answer is no, you don’t need to increase your coverage. After all, market forces are simply the economic law of supply and demand. As demand increases, the seller can generally obtain more for their home – but that doesn’t necessarily reflect its actual value. And demand changes over time.
Just as quickly as a neighborhood can become “hot” – by the development of nearby trendy shopping or entertainment, it can also “cool off” – school districts can change and businesses can close.
Your home insurance coverage limits aren’t based on how much you bought the house for, but rather, the value of replacing your investment in case it’s destroyed by fire, flood, wind, etc. Now, location is a factor as far as weather is concerned – and weather means risk; fortunately, a factor that is not so significant in Albuquerque as other parts of the country.
But, there are two major factors that can increase your need for more home insurance:
- You renovate or add to your home.
Remodeling rooms in your home can, naturally, add several thousand dollars to your home’s replacement cost. - Local construction costs increase.
Local construction booms can shoot prices sky-high. That’s why it’s never a bad idea to run your home’s numbers on a coverage calculator on occasion.
So, under either of these scenarios, you should increase your home insurance coverage limits to match the new replacement cost. Of course, try not to jump to conclusions if your numbers increase. Rather, investigate the reason for the increase and evaluate with your insurance agent whether you need to increase your coverage accordingly.
If you have any home policy tips to add, please leave them in the comments below. And if you’re thinking about selling or buying a home in metro Albuquerque, be sure to contact me today!
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