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HOME : Just the FAQs Ma'amWhy Premiums Don't Follow Home Market ValuesIn the community where I live, the price of housing has gone down over the past few years. And yet, the cost of insurance on my house continues to go up. Since my insurance is intended to replace my home if it is damaged or destroyed, why don't my premiums go down along with the market value of my house? Despite what the song says, what goes up doesn't necessarily have to come down - at least when it comes to homeowners insurance! Although this is a common misconception among consumers, the cost of your homeowners insurance is not related to the market value of your house. The cost of your insurance - and the amount for which it is insured - is based on how much it would cost to replace your house at current prices if it were totally destroyed in a fire, for example. While housing prices in your area may have gone down, the cost of replacement has not. In fact, it continues to rise. Therefore, most insurers automatically increase the amount of insurance on your home to keep pace. That way, if disaster strikes, you'll have enough insurance to get back on solid ground - or new flooring, as the case may be. Much of the homeowners insurance sold today is on the basis of guaranteed replacement cost. That means the insurer will pay whatever it costs to repair your house, even if it's more than what the house was insured for. Therefore, you can appreciate that the insurance company wants to keep the insurance on your house as close as possible to the true replacement cost - and you pay the premiums accordingly. You may think the insurance company is over-insuring your house (and is therefore overcharging you). Maybe someone in the construction industry has told you it would cost less to rebuild your home than the amount for which you are insured. However, there are other factors to consider. Let's say your house was completely destroyed by fire. All that's left are the charred remains - what a mess! Before your house could be rebuilt, all the debris would have to be removed. Your insurance would pay for this too. Also keep in mind that your homeowners insurance is a package policy that covers much more than the cost of replacing the building itself. It also covers the contents of your house, additional living expenses if you had to live elsewhere while your house was being repaired, as well as provides liability protection if you accidentally injured someone or damaged someone else's property. So as the housing prices in your neighbourhood rise and fall, remember that your homeowners insurance won't follow suit. Note: Remember, policies vary, so when in doubt, Contact Us.
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