When Enough is Enough

With the market With the market value of homes going up, sideways, down and up-side-down, it’s hard not to question if your homeowners insurance is giving the coverage you need in case of catastrophic loss.

If your homes market value goes down, should your insurance coverage?

No Here is why:

There are three ways to value a home: The market value, the tax value and the insured to value amount. The first value is market driven. You pay what the market will bear. This amount does not directly relate to how much insurance you should buy. The second value is the assessed amount your home and property is worth. I still don’t understand how that amount is arrived at, I just know it doesn’t have anything to do with how much insurance you should buy. That leads us to door number three, the insured to value amount. After all of the questions your insurance agent asks you and a few other considerations, this is the amount of homeowners insurance coverage that should be bought. Sometimes it is an amount lower that your purchase price (don’t forget: land and views are not insured…..at least not through standard a homeowners policy), sometimes it is higher. Quick review: market price is not a consideration when valuing a home for insurance.

So, if the market value of your home changes in either direction, up or down, it will never effect the coverage level in your homeowners policy. That level is only concerned with how much it would take to restore the structure of your home, including the foundation. You should review the coverage level every couple years, more if you’ve done any remodel, made any other structural changes to your home or purchased any new high valued items. Other than that you’re fine.

The market will do what it does. That is worry enough. Work with your agent on setting the correct insured to value amount in your homeowners policy and then move on to other things. You’ve done all you need to do.