Congratulations, you just bought a new home. And now the next thing you will need is home insurance. So you do what most prudent homeowners do, and insure your home for what you paid for it. After all, that’s what it’s worth right?
Not so fast. While your home might be worth market value, here are three reasons you should not insure it for that amount:
Market value doesn’t always match rebuild cost. There are many factors that influence the cost of rebuilding a home. Constructions costs, square footage, the type of exterior wall construction, the type of roof, and exterior trim are just a few. Simply having features like arched windows, unique interior trim, extensive decking, a tile or metal roof, or a special exterior finish can dramatically increase the cost a rebuilding a home.
Building costs increase every year. The cost to rebuild a home, like the cost of everything else, is affected by inflation. Therefore, even if rebuild costs did match market value when you first purchased your home insurance policy, when next year rolls around, they most likely won’t. For just this reason, many insurance policies offer an “inflation guard clause” which adjusts for current construction costs. However, even if you have an inflation guard clause, you should still keep up with local building costs every year and make sure that you are insured for the cost of rebuilding your home.
Building codes change every year. The cost to rebuild your home depends not only on factors such as material, interior and exterior finish, and your roof material, but also the building codes that must be complied with. For example, let’s say that the home you lost did not have a drip edge, and now to comply with local building code, a drip edge must be installed. This would increase the cost of a home rebuild. Now imagine that there were several codes like this that must be complied with and you can easily see how quickly the cost of rebuilding your home would increase.
Home insurance is meant to protect you in the case of damage to your home, and it is wonderful when it works. By insuring your home for rebuild costs, you will make sure that in the worst case scenario – that your home need be rebuilt – you will be fully covered.
This article is brought to you by ASAP Roofing, a national roofing company that specializes in hail damage, roofing restoration and weatherization. ASAP has offices in Dallas, Texas, and Denver, Colorado.