Lowering your insurance to match reduced market values is a bad move

Home & Commercial Building Prices Down, Rebuilding Costs Up

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

Homeowners Insurance and insurance for commercial buildings is designed to cover the cost of rebuilding, not the market value of a home or commercial structure.  Recent studies show that rebuilding costs have climbed during the recession, even as market values plummeted.

In past decades, market values were always ahead of rebuilding costs. That trend has reversed. Homeowners and business owners are encouraged not to lower their insurance to match market values. If your home or business is destroyed in a fire, you could be stuck paying the difference between your  insured amount and the actual cost to rebuild.

Instead work with your agent or insurance company annually to determine the cost to rebuild and insure accordingly.

Research from Xactware, a leading rebuilding cost estimator for the construction and insurance industries, reveals that between 2006 and 2011 average reconstruction costs rose 17.55 percent in Washington, 13.92 percent in Oregon and 13.81 percent in Idaho.

During that same time period, data from the National Association of Realtors shows median home sales prices fell 25.9 percent in the Seattle-Tacoma-Bellevue area and 14.13 percent in the Spokane area. The only areas that experienced a net increase in median home sales price were the Yakima area with prices rising 28.13 percent and Kennewick-Richland-Pasco prices rising 16.14 percent. 

In Oregon, median home sales prices fell 22.04 percent in the Portland-Vancouver-Beaverton area, 30.34 percent in the Salem area and 18.3 in Eugene-Springfield. In Idaho, median home sales prices fell 43.58 percent in the Boise City-Nampa area.

According to Xactware, the national average cost to rebuild rose 15.17 percent between 2006 and 2011. The national median home sales price fell 21.6 percent, according to the National Association of Realtors.

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 the home. 

Although most insurance companies periodically 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. 

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 ask about special coverage for high-value items such as jewelry, art, antiques and coin collections.
  • Marshall & Swift offers homeowners an affordable way to check home replacement costs using their online Accucoverage tool. For $7.95, Accucoverage evaluates your home and gives an estimated rebuilding/replacement cost.
  • 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. 

    For more information on Homeowners and business insurance, visit NW Insurance Council or call (800) 664-4942.
The NW Insurance Council is a non-profit, public-education organization funded by member insurance companies serving Washington, Oregon and Idaho.