Do you think your insurance agent is nuts? It's ok if you do! It takes a bit of insanity to do this for decades!
As I reflect on my 40th year as an agent, some things have not changed. One of those things is the need for clarification surrounding the difference between a home's market value and the amount of coverage shown on your insurance policy.
Market value is what your home is worth on the current housing market – the expected amount for which you could sell your home. The coverage on your policy is based on what it would cost to rebuild your home or the cost to repair it. Insurance must provide coverage to remove the damaged portions of the house and then rebuild, using materials of like kind and quality to what was lost, at today's labor costs.
While Market Value and Replacement cost include some common factors, such as the home's age, the characteristics of the home, the quality of materials, and square footage, some significant differences affect your premium. Insurance premiums will incorporate current labor and construction costs as well as the supply and demand forces currently found in our region of the country.
Market value will focus on the number of houses currently for sale, land values, the economy, and the community's infrastructure. Market values fluctuate with the economy, rising when demand is high and falling when interest rates soar. Insurance valuations, however, take a steady increase in line with costs, which never seem to go down.
Renewal time is an excellent time to talk to your agent. Review your coverages, make changes where you can, and discuss your coverage needs which may change over time.