What is Your Home’s Insured Value?

When it comes to insuring your home, understanding the rebuild value is crucial.

Suppose you paid $250,000 for your home two decades ago, or maybe you purchased your house last month. When it’s time to start looking for insurance, our advisors get asked, “Why is the insured value higher than what I paid for the house?” Insurance policies use a much higher amount as an insured value than your market value sale price. Why? Many people think of what they paid for their home as their maximum potential loss in a home insurance claim. There’s a bit more going on with the numbers, though, and it’s to the insured’s benefit.

We’ll explain in this article why the insured value is higher, what factors are considered in determining the rebuild value, and what you can do to ensure your home insurance coverage aligns with your property’s value.

Rebuild Cost: More Than Just Purchase Price

The rebuild cost of your home is not based on the market value or what you paid for the property. Instead, it is the sum total of expenses required to tear down the existing structure and rebuild your entire home from the ground up. While you may have purchased your home for $250,000, the rebuild value will likely differ due to:

Inflation and Rising Costs

Over time, the cost of materials and labour has increased significantly. Construction materials like lumber have become more expensive, and labour wages have also risen. These factors contribute to the higher rebuild cost. Consider the cost of tearing down the existing structure, debris removal, purchasing new materials, and hiring labour. All these expenses add up and influence the insured value of your home.

Unique Features and Improvements

The insured value also considers your home’s unique features and any improvements you have made. Modern home insurance policies consider factors such as the number of storeys, square footage, and upgrades to the kitchen and bathrooms. These enhancements add value to your property and are reflected in the rebuild cost.

Determining Rebuild Value

Insurance companies use advanced tools and databases to determine your home’s rebuild value accurately. One such tool is iClarify, which accesses a vast database of property information, including claims and inspection data. By leveraging this information, insurers can provide a more accurate estimate of your home’s rebuild value.

The Role of iClarify

iClarify employs a four-step process to calculate the replacement cost:

1. Geo-coding and Imagery: iClarify gathers your property’s latitude and longitude coordinates to provide accurate imagery. This data pulls construction feature information and finds comparable homes nearby.
2. Confirmation of Construction Features: The user confirms the construction features of the home, ensuring the data is accurate and up to date.
3. Comparison with Comparable Homes: iClarify identifies the 100 closest homes inspected or had a claims adjuster on-site. By analyzing the data on these comparable homes, iClarify determines the replacement cost.
4. Calculating the Replacement Cost: Using the information gathered from the property and comparable homes, iClarify calculates the replacement cost, providing a more accurate estimate for rebuilding your home.

Reviewing and Adjusting Coverage

As the cost of materials and labour changes, it’s vital you review your home insurance coverage regularly. Some policies offer automatic inflation-based adjustments to the insured value at the time of your policy renewal, providing added protection against rising costs. However, it is always a good idea to review your coverage with your broker or insurance advisor more than once a year.

The Importance of Regular Reviews

Reviewing your coverage ensures that it aligns with the current rebuild value of your home. By consulting with your broker at least once a year or every ten months, you can stay informed and make any necessary adjustments to your policy. This proactive approach helps to ensure that you are adequately protected in the event of a loss.

Updating Coverage for Home Improvements

If you make significant improvements to your home, it is crucial to inform your agent or broker to ensure your policy covers the increased value. While minor upgrades like painting may not affect the insured value, renovations such as upgrading the bathrooms can impact the rebuild cost. By keeping your insurance provider informed, you can ensure your coverage aligns with the value of your investment.

Understanding your home’s rebuild value is essential for securing the right insurance coverage. By considering factors such as inflation, rising costs, unique features, and improvements, insurance companies determine the insured value of your home. Tools like iClarify provide accurate estimates by leveraging extensive property information databases. Regularly reviewing your coverage and updating it for home improvements are crucial to ensure adequate protection. By staying informed and proactive, you can have peace of mind knowing that your home insurance coverage aligns with your property’s value.

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