Declining Home Values and Homeowners Insurance

October 18, 2006 | By: | Comments (3) | Posted in: Homeowners

As the housing market slows, and home prices begin to drop, homeowners should not be fooled into thinking that they should automatically reduce their current amount of homeowners insurance coverage. The amount of coverage a home owner needs is based on the replacement value of the home, not its fair market value; therefore, fluctuations in the housing market do not always correlate with changes in one’s homeowners insurance coverage.

A standard homeowners insurance policy provides four fundamental types of coverage, all of which are not affected by fluctuating home prices: 1.) rebuilding the structure of the home, 2.) replacing personal possessions, 3.) liability protection, and 4.) additional living expenses in the event you are displaced from your home.

Those who consider making adjustments to their homeowners insurance policies, nonetheless, are on the right path to optimizing their homeowners insurance to meet their changing financial position. Reviewing the policy every year affords a home owner the ability to make necessary adjustments to their policy limits, be it, adding additional coverage for recent home improvements, or removing extra policy riders for valuable possessions that may have been sold. Rates continually fluctuate, and can vary by hundreds of dollars from company to company, therefore, an annual review also gives home owners the opportunity to realize significant savings by simply getting a couple quotes.

As home prices begin to drop, and the cost of mortgage payments increase, homeowners insurance can offer some financial flexibility that can help offset the increase. In such a case, home owners should look for multi-policy insurance. For example, if your auto insurance company also sells homeowners insurance, you may be eligible to receive discounts of up to 15% off your premium for buying both products. Additionally, increasing the deductible by just a few hundred dollars can make a significant difference to the cost of the premium. Most deductibles start at $250, therefore, if you raise your deductible from that to $1,000 you may save nearly 25% on your premium. Even further, there are dozens of homeowners insurance discounts that go unrecognized by many consumers. Even though they seem ordinary, you may be able get a lower premium if your home has safety features such as dead-bolt locks, smoke detectors, an alarm system, storm shutters or fire retardant roofing material.

Fluctuating housing markets can distort reality, and often times are blown out of proportion by the polarized opinions that informally define them. In the confusion and uncertainty, home owners should not overreact and automatically change their homeowners insurance coverage. Instead, homeowners insurance policies should be evaluated as a whole, taking into consideration the cost of rebuilding the structure, replacing possessions, and protecting against liability lawsuits that threaten the home owners.

 

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