How should you determine the amount of homeowners insurance you need?   First, homeowners must realize that the replacement cost and the market value of their homes are not the same.  While the market value of a home may plummet or rise depending on a variety of factors, the cost to rebuild a home changes only as the cost and availability of materials change.  A 33% drop in the market value of a home does not affect the availability or cost of building materials to replace the home.  Therefore, homeowners must properly insure their home to the replacement cost value, not the market value.

We often hear questions related to homeowners insurance such as, “Why would I want to insure my house for $240,000 if it’s only worth $120,000, according to my property taxes?”  The reason is that, when you buy homeowners insurance, you’re not insuring the market value of your home, but rather how much it will take to replace it. You’re protecting yourself against financial loss if a catastrophe would occur. Would it cost more than the Market Value ($120,000 in this case) to rebuild your home from scratch? The answer is usually yes.  That is why it’s important to insure your home at the level it would cost to replace it—not its market value.  Although it might seem like you’d save money, if you insured your home for its market value, you could end up worse financially if disaster hits.

It might seem strange to think about.  People are inclined to think in terms of value—how much is your car worth?  How much did you spend on that coat?  But when it comes to insuring your home, the current market value isn’t necessarily the most important aspect–protecting yourself from financial disaster is.

 

Your Trusted Erie Insurance Agent

at Foundation Insurance Group can Help

At Foundation Insurance Group, an Erie Insurance Agency, we help figure out what coverage is right for you, depending on certain variables including location and recent improvements you’ve made to your home. Give one of our agents a call at 703-988-3750 or check out our website at www.foundationinsurancegroup.com.

From your local Erie Insurance Agent- Foundation Insurance Group located in Falls Church, VA but as always servicing Arlington,  Mclean, Tyson’s Corner, and all of the Metro DC area.