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Resale Value vs Reconstruction Cost – And What They Mean for Your Insurance

Occasionally, our clients will call us at the time of their homeowner’s insurance renewal to inquire about the coverage amount for their home.  With home values in the basement, it’s no wonder that insurance customers are confused when their insurance declarations page shows a coverage amount that seems much higher than the market value of their home.

We can’t blame them!  Adequate coverage can a very confusing topic.

What is adequate coverage?  Do you insure for the amount you paid for your home? Or, do you insure for the (shrinking) resale value?

The answer is:  Insurance does not follow the market value of a home, but rather what it would cost to rebuild the home.

Even though homes across the nation have been decreasing in value, the cost of labor and construction materials has increased dramatically due to increased global demand for lumber, steel and concrete.  For example in 2011, the price of gas increased 37%, copper increased 20% and plywood by 8%.

Think of it this way:  Insurance serves to restore your home to its pre-loss state.  That means, if your house burns down, you want a policy that pays the cost to rebuild your home, taking into consideration any and all re-construction costs, including permits, materials and labor.

Keep in mind that rebuilding after a major loss actually costs more than new construction because you also have to account for demolition and debris removal expenses.  If building costs continue to rise, remember to review your homeowner’s policy regularly to make sure that its limits still provide adequate protection.

The same is true if you have made substantial additions, renovations or improvements.  If you’ve invested into your home, give your insurance agent a call to adjust your limits.

No agent?  No problem!  If you reside in Washington, Oregon or Utah, simply call us at 425-379-9200.  We’re here to help!

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