Many people don’t know where to start to estimate home value when purchasing homeowner insurance. For some, the first instinct may be to insure the home based on mortgage value. Others may look at real estate market value, property tax basis or some other factor. But any of these values could be far less than the actual cost to rebuild, and that is the key consideration when buying insurance to protect against a loss.
There is no way to guarantee the cost to reconstruct your home in the event of a loss at some future date, but there are a couple of tools that can point you in the right direction.
Estimator ̶ Many insurance agents run your home through estimating software designed to consider specific details of your home, along with construction costs in your community. For best results, list as many individual details of your home as possible. Estimators often have built-in defaults – such as the architectural style or quality of construction – that can have a huge impact on the home’s value. Make sure these items are correctly entered:
- square footage
- architectural style
- year of construction
- type of construction (frame vs. brick)
Remember to include any special features, such as custom cabinetry or a theater room. We discussed some of these items in our blog, 7 factors to help nail down your home’s reconstruction cost.
Inspection ̶ If you have a custom home with features that may not be adequately addressed by the estimator software, your insurance company may offer to send a professional inspector to your house to determine the reconstruction cost. The inspector usually measures the square footage, takes inside and outside photos and records the details of each room.
Once you determine your home’s correct insurance value, many insurers can automatically increase the coverage amount each year based on local inflation factors. Your homeowner policy may have other coverage options to help make sure you have enough insurance to rebuild after a loss. One option covers your home for an additional amount, usually a percentage, over the amount listed on your policy. Another option covers you for the full amount of rebuilding your home, regardless of the amount you purchased. These options may not be available from all insurers, so check with your local independent agent to discuss the best ways to ensure adequate coverage to rebuild your home.
Coverages described here are in the most general terms and are subject to actual policy conditions and exclusions. For actual coverage wording, conditions and exclusions, refer to the policy or contact your independent agent.