Avoid a financial fumble: Don’t reduce Homeowners or business insurance to match lower market values

In a difficult economy, it may be tempting to save a few dollars by reducing your Homeowners or commercial building insurance coverage to match decreased market values.

However, studies show that rebuilding costs have climbed during the recession and lowering coverage may be a risky move.

“In past decades, market values were always ahead of rebuilding costs. That trend now has reversed,” said Karl Newman, NW Insurance Council president. “We encourage homeowners and business owners not to lower their insurance to match market values.

If your home or business burns down, you could be stuck paying the difference between your insured amount and the actual cost to rebuild.”

Although most insurance companies routinely update your replacement cost coverage amount, it is your responsibility to make sure you have enough coverage for your home or business and its contents. A 2008 survey by Marshall & Swift showed that 64 percent of homeowners in the United States don’t have enough insurance to rebuild their homes if they are destroyed. Of those without enough coverage, the average homeowner only has enough insurance to rebuild about 81 percent of his home.

Also, while home prices have fallen, studies by Xactware, a leading rebuilding cost estimator, show that costs to rebuild damaged homes increased through the recession, only leveling out this year. Cost increases were powered by rising transportation and building materials costs.

NW Insurance Council offers the following tips to help you keep your insurance coverage up to date:
  • Contact your agent or insurance company annually to evaluate the current replacement cost of your home or commercial building. Be sure to include any large remodel projects or additions that could add a substantial amount to your rebuilding costs.
  • Also, be sure to ask about special coverage for high-value items such as jewelry, art, antiques and coin collections.
  • Consider separate optional flood and earthquake insurance. Flood and earthquake damage is specifically excluded from standard Homeowners insurance policies and most business insurance policies.
  • Keep an up-to-date home inventory with Free Home Inventory Software from the Insurance Information Institute.
  • Prepare your business to survive a disaster, get Open For Business from the Institute for Business & Home Safety.


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