While real estate prices are increasing, many homes are still below pre-recession levels. Accordingly, some homeowners may think that their homes’ insured value has shrunk as well. However, it is important to make the distinction between “market value” (the price at which a home may currently sell) and “replacement cost” (the price of repairing/rebuilding a home). The fact is that a home currently valued at $350,000 (down from its high value of $425,000 six years ago) may cost upwards of $550,000 to replace after it is destroyed by fire. Why? The cost of materials and labor continues to rise. With this in mind, homeowners are advised to insure their homes at the replacement-cost amount and update it every 3-5 years.
NOTE: It is important for homeowners to document and report upgrades or additions, remodeling projects, or renovations that they make to their homes so that they may continue to be adequately insured.