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    When Your Home’s Value Increases, Should Your Insurance Coverage Rise with it?

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    Have you added a pool to your home? Installed a new kitchen or bath? Or are you simply lucky enough to live in a highly desirable neighborhood that enjoys consistently steady or improving property values?

    Smart homeowners pay attention to their home’s value for a variety of reasons, not the least of which is to make sure their insurance coverage remains on par with the home’s insurance needs. If your home’s sale value increases, it doesn’t necessarily mean you should up your home insurance coverage, since real estate prices are based largely on demand.

    The more demand to buy your house, the higher you can set your price. Demand, however, can be fickle and is determined by a number of factors that can change. For instance, location is a huge element in real estate demand. If your home is in a great school district, or close to popular shopping and entertainment areas, you’re probably looking at positive home values.  Over time, however, neighborhoods can lose their trendiness for a number of reasons—school districts can be reconfigured, shops and theaters can shut down.

    When these things happen, home values can sink.

    In recent years, real estate market in many parts of the country have enjoyed a post-recession renaissance, and as demand rises and more buyers come into the market, home values generally go up.

    Still, an upward swing in your home’s value shouldn’t affect your insurance coverage needs since coverage is determined by what it would cost to rebuild in case disaster were to strike, rather than what you paid for your home. The factors that are taken into consideration when it comes to estimating the value of a home for insurance purposes include the size of your home and local construction costs.

    Insurers will also consider the amount of risk involved in the home’s location. For example, people living in areas known to be at risk of severe weather evens such as hurricanes or tornadoes have higher property risks than others living in calmer climates.  Still, the land you own on which your house was built is not considered something that can be destroyed.

    To determine whether or not you need more (or less) insurance coverage on your home, consider which value of your home has increased. If it’s the market value, which is determined by demand, then you don’t need to increase your coverage.

    If construction costs in your area have increased significantly, then you may want to ask your insurer if you need to increase your coverage.

    If you have remodeled or added space to your home, you probably need to increase your coverage to compensate for the heightened value any improvements bring with them.

    Increasing your insurance coverage to match the added value in your home doesn’t necessarily mean that your insurance premiums will skyrocket; the increase may be surprisingly modest. Shop around for competitive pricing, ask individual insurers about any discounts they may offer, and find out if there are any discount incentives offered for added safety measures in order to keep your premium costs down.

    It’s always a good idea to keep track of your home’s value, and be aware of what causes are behind any increases or decreases. A local real estate professional should be able to answer questions about your home’s value, and the value of home in your neighborhood.

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