Home Insurance: Rebuild Vs. Market Value

“What is the difference between my rebuild value versus the market value of my home?”

We are asked this important, but somewhat confusing, question three to five times a week. When the U.S. housing market took a turn in 2008, many Central Texas homeowners saw their property values go down, and they wondered if they should adjust their insurance, too. The market value of your home is not directly correlated to the rebuild value of your home, and tweaking your insurance to match a downturn in property value is a losing proposition.

Here’s why. If disaster strikes, then we want you to have enough money to re-establish your home at the SAME standard of living you had before the disaster took place. This most likely means that your insurance policy should reflect a higher rebuild value than the home’s current market value.

There are a number of factors to take into account when rebuilding your home. Construction costs can fluctuate and you want enough money in your policy to cover higher costs. An older home might need additional work to bring it up to current code standards, some of which may have been put into place since your home was first built. And, if your home is part of a master planned community, then the original builder of the home most likely received bulk or at-cost discounts that won’t be realized when rebuilding.

The amount of insurance needed for a potential rebuild could be 50% or more beyond the market value of your home. Therefore, a home with a $200,000 market value might carry a policy with a rebuild policy amount of $300,000 or more.

According to Business Week, Texas property values are on the rise, and Central Texas is one of the strongest housing markets in the state. Keep in mind that a strong housing market could translate to rising costs for rebuilding, due to higher demand for construction products and services.

Here are two steps to take to ensure you have an accurate estimate of your home’s value and its belongings:

  • Maintain an accurate inventory of all your belongings — everything inside of your home. We’ll explain how to do this in an upcoming blog.
  • Hire a qualified building or licensed real estate appraiser to perform an analysis of your property every two years or after any improvements to the interior or exterior. Please notify us immediately if the coverage amount need to be increased based on the completed replacement costs estimate.

Still wondering if you have enough home insurance to cover rebuilding costs in the event of a natural disaster or other tragedy? Please call, email us or visit our offices in Georgetown for a consultation.

Posted 3:36 pm