What is Your Home’s Insured Value?
Let’s say you paid $100,000 for your home two decades ago. However, your insurance policy uses a much higher amount as an insured value. How did this happen? 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 the numbers, though, and it’s to the insured’s benefit.
If you paid $100,000 for your home 20 years ago, the chances are good that your home has gone up quite a bit in value. Your potential financial loss has a closer relationship to what your home is worth today than with what you paid for it years ago. However, that relationship is almost accidental. Instead, the insured value makes more sense if you consider how much it costs to build another home just like yours.
What’s in the Insured Value?
Labour costs and transportation costs play a role, both of which increase over time. Unique features of your home also weigh on the cost of rebuilding. Modern home insurance policies consider everything, from the number of floors and square footage to whether you’ve upgraded the kitchen and bathrooms. This method captures the value of your improvements as well as the money you invested when you bought your home.
Today, sophisticated software calculates the value based on the current cost of materials and labour to rebuild your home as good as new if you have a total loss. Using the latitude, and longitude coordinates of the home and the confirmed construction features, our system searches to find the 100 closest, similar homes that have been inspected or have had a claims adjuster on site after a claim. This helps to determine a realistic replacement cost using comparable homes nearby.
What can you do?
As the cost of materials and labour changes, contact your broker as you should adjust your home’s insured value as well. Some policies offer automatic inflation-based adjustments as a built-in feature. Other policies may not — or the math may be less precise than you’d like. It’s always a good idea to review your coverage with your broker. We recommend contacting them once every year or every 10 months.
Also, if you make any significant improvements to your home, be sure to reach out to your agent or broker to be sure your policy covers the value of your new investment. Painting the bedroom — like you’ve been promising to do — won’t change the insured value of your home, but upgrading the bathrooms in the house could change the rebuilding cost of your home.
Connect with your advisor today to review the insured value of your home.