It’s a really common question and one that our agents are answering all the time. Homeowners see their property values dropping and wonder, “How can it cost more to insure my home when my property value is declining?”
It’s a good question- and one that should be thoroughly answered.
During the economic slump that we’ve been experiencing over the past few years property values tend to decline as the real estate market slows. Homes are not selling as quickly which decreases demand and therefore lowers the competitive edge of the seller. As homeowners across the country have seen, most property values are much lower across the board than they were even just a few years ago.
So with home values declining, why do home insurance rates continue to increase?
Here are a few reasons:
1- One of the greatest factors in determining the cost of home insurance is the replacement value of the home being insured. The factors that determine your home’s replacement value vary greatly from the factors that determine its market value. The replacement value of a home is the cost that it would take to rebuild a home using current construction costs. Just because home values have dropped, doesn’t mean that building costs have dropped, so it may cost more to rebuild your home even when it’s not worth as much on the real estate market. >>Check out this home insurance calculator to see how your replacement cost is determined.
2- As severe weather events rock the country over the past few years insurers have been left picking up the tab for the thousands of homeowners insurance claims filed. If the area around your home has been struck hard by hurricanes, tornadoes, flash flooding or snow storms you will likely see rate increases in the near future.
3- Insurance fraud is another factor continually driving up the losses incurred by insurance companies and therefore the premiums held by the consumer. It was estimated by the Coalition Against Insurance Fraud that in 2006, $80 billion was lost due to insurance fraud in the United States alone.
There are some things you can do to decrease the cost of your homeowners insurance including installing burglar alarms and other protective devices in and around your home. Most homeowners find that the discounts they receive for having these devices outweigh the cost to install and maintain them. You homeowners insurance agent should be able to give you savings estimates for installing any of these features.
For more information visit Home Insurance Discounts.