A very common question we hear from our clients on a regular basis is “How do you determine the value to insure my home for and why does it increase a small percentage each year?”. The following article from one of the insurance companies we represent; Vermont Mutual Insurance Co., gives some insight into “Insurance to Value” and the importance of Inflation Guard:
What is “Insurance to Value” and why is it so important to your insurance protection?
Do you have enough insurance to replace your home in the event of a substantial loss? Many homeowners may find the answer to be surprisingly “NO”. The value of a home can increase for many reasons, adding an addition, a garage or remodeling just to name a few. One-in-four remodeling projects will increase the value of a home by 25 percent or more. In the process of improving a home, the homeowner often neglects to increase their insurance protection to keep up with the increased value of the home.
“Insurance to Value” does not refer to the market value of your home, it refers specifically to the cost to replace or repair your home. Market values vary based on many regional and economic factors. Replacement cost continually increases because the cost of materials and labor continually increase. When a home is repaired or replaced, there can be costs to clear debris, upgrade to current building codes, work around existing landscaping and “good old inflation” that add greatly to the overall cost and in some cases make it more expensive than building a new home.
Your best protection is to contact your independent insurance agent to verify that you have “Insurance to Value” anytime the value of your home changes. Your agent has accurate methods of determining the replacement cost for your unique home and can suggest the correct amounts of homeowners insurance protection.
By accurately matching the amount of insurance protection to the value of your home you can avoid being caught short of coverage when you need it most.