It’s About Location

When you buy a home, you’re paying for both the building and the land. Depending on your location, land can add significantly to your home’s market value. On the other hand, if you experience a fire or other insured peril, even if your home is a total loss, you still own the land and won’t need to “replace” it. This is why, in most cases, the insurance value is going to be less than the market value.

There are some situations, however, when the opposite will be true. If you live in an area where land is inexpensive, or the housing market has dropped significantly, it could cost more to rebuild your home than buy it, especially if your home has expensive design elements or features.

Staying Up-To-Date

That’s why it’s important to make sure your homeowners insurance coverage is up-to-date and reflects current rebuilding costs. A 2008 survey by Marshall & Swift/Boeckh, a leading provider of building cost data, suggests that 64% of American homes may be underinsured. Here are two simple steps you can take to ensure your home is appropriately protected:

• Review and update your homeowners coverage regularly. Tell your insurance company or your agent whenever you do any renovations, additions or upgrades to your home. If your homeowners coverage doesn’t keep pace with your changes, you may not be able to fully rebuild without significant out-of-pocket expenses.
• Consider additional protection. If you don’t have it already, ask about enhanced coverage called Replacement Cost Coverage. Generally this coverage pays to fully rebuild your home, even if the actual costs are as much as 125% - 150% of applicable limits. This option is available on most homeowners policies from The Hartford, as a very reasonable cost.

Better Ways to Save

Given that everyone is looking to stretch their dollars, it may not seem like a good time to consider increasing your homeowners coverage. Keep in mind, however, that your home is your most important asset. Rather than skimp on coverage, consider other ways you can lower your homeowners insurance costs, including:

• Look into bundling your car and home insurance with the same company. The Hartford, for example, adds discounts to both your auto and home policies when you bundle your coverage. (Discount amounts and homeowners availability varies by state.)
• Consider raising your deductibles. If you can afford to pay more out of pocket in the event of a loss, even changing from a $250 to a $500 deductible could help you save.
• Make sure you’re taking advantage of available discounts.