How the Market Can Impact the Value Your Insurance Agent Has Placed on Your Home 

As a homeowner, you’re likely aware that your property carries significant value. After all, purchasing a home is likely one of the most expensive transactions of your life. Understanding and retaining appropriate insurance coverage is paramount for safeguarding your investment, but this process may require a nuanced understanding of various factors, including how market conditions may impact how your home is valued.

How Does My Home’s Value Impact Insurance?

As a homeowner, one of the most important things to understand about your insurance is that it’s based on what it would cost to rebuild your home, not what you could sell it for. That rebuild cost, called the replacement cost, covers items such as materials and labor, but not the value of the land or market factors like location and buyer demand.

You’ll want to ensure your policy limits are high enough to cover a total rebuild. Most insurance companies require you to carry coverage that’s at least 80% of your home’s replacement cost. If you’re underinsured, even by a little, you could get a reduced payout if you ever need to file a claim. This rule is tied to a coinsurance clause, which can really impact how much help you get after a loss.

It’s also worth noting that rebuilding costs can change over time. Things like rising material prices, labor shortages, and inflation can all drive up what it would take to reconstruct your home, which means your coverage might need to be adjusted. While your home’s market value can go up or down based on the real estate market, those shifts don’t necessarily affect how much it would cost to rebuild, which is what your insurance is based on.

How is My Home’s Value Calculated?

Your home’s value may be assessed through several means and for various purposes. For example, your local government may assess its value to calculate property taxes. Home insurance companies typically look through the following two scopes when considering your home’s value:

• Replacement value—This appraisal method calculates how much your home would cost to rebuild fully from the ground up without considering depreciation.

• Actual cash value—This calculation considers how much your home would cost to replace, while subtracting depreciated value, such as due to aged plumbing systems or roofs.

Because actual cash value results in lower claim payouts, replacement cost coverage is often preferred for homeowners seeking to minimize out-of-pocket expenses after a loss. Additionally, your lender may appraise your home if you have a mortgage. Since mortgages usually come with insurance-related requirements, these assessments could impact your coverage needs and expenses.

We’re Here to Help

Contact McCartan Insurance Group in West Des Moines, Iowa, today to learn more about market factors and home insurance.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.