At What Value Do I Insure My Home?

When purchasing homeowners insurance, you’ll need to determine the value of your home. This can be tricky, but it’s one of the most important components of your policy, because it determines the amount your insurer will pay if your home is damaged or destroyed. Insurance providers rely on the homeowners to value their home, leaving people at risk for having too little insurance. Follow these tips to get the right amount of coverage for your home.

It’s important to keep in mind that the replacement cost of your home and the appraised/market value are not the same thing. The market value of your home is dependent upon what similar houses in your market are selling for; whereas the replacement cost to insure a home is based on the cost to rebuild a home. In today’s economy, the market value for homes is going down, and due to inflation and building costs, the replacement cost to insure a home is rising. To determine the appropriate replacement cost, you’ll want to look at the building costs per sq. ft in your area as well as the specialty features of your home.

Another important determinant to keep in mind is whether your insurer offers guaranteed replacement cost. If they don’t, and you’re underinsured, this could mean you’re left to shoulder the bill if something were to happen to your home. That’s why Dave Ramsey strongly recommends either a guaranteed replacement cost or extended replacement cost on your policy. Determining the appropriate value for your home can be tricky, but obtaining the right coverage based on the value of your home is an important step in protecting your home.