Your Home Insurance Rate and the Value of Your Home

Here is a different way to understand your home insurance rate: imagine that your 20 year old home that you purchased for $100,000 in 1987 is destroyed in a storm and you want to rebuild it to the exact design as the original home. You have $100,000 in the bank will that be enough to rebuild it?

Unless you have been living on Mars, you know that this amount of money will not be sufficient to rebuild the house to its original design; construction costs alone have increased, building materials that were used in the construction of the original home may be difficult or impossible to find and there is the issue of whether or not the house must be rebuilt to new building code standards.

The replacement value of your home affects your home insurance rate without a doubt. Replacement value is the amount of money that would be required to rebuild your home at today's level of cost. Therefore if your home is made from expensive materials such as wood, which presents a higher risk from fire than a house made from brick, you can expect to pay more to insure it.

Construction costs for homebuilding have decreased in general, but the situation for homeowners and insurance companies varies from one state to the next. The general economy also plays a role; premiums will go up if inflation hits the market. Your home insurance company incorporates many factors into your premium and they assume some appreciation on your property every year.

Home insurance companies like to see the homeowner assume some of the responsibility for protecting the value of their house and reward those that do with lower premium rates. For every safety feature you install in your home there is more than likely a home insurance discount for it; smoke detectors, fire extinguishers, burglar alarms, deadbolt locks and outside motion detectors are all ways you show the insurance company that you are a "good risk.'

Consider your home insurance policy as your catastrophe fund; the money you need in the event of a disaster that exceeds your ability to handle on your own. Whatever amount of deductible you carry should be sufficient to show your home insurance company that you take the responsibility of owning a home as seriously as they do. If you file a claim only when it's necessary, you shouldn't have to worry about policy cancellation.