Tumbling house prices may have you wondering whether homeowners’ insurance premiums will fall too.
Fair question. But the answer is not as straightforward as you might think. Although median house prices in the US are down around 7% year on year, don’t expect to be able to cut your premiums by the same amount.
For a start, your homeowners’ policy covers a lot more than your structure. It probably also covers contents – and the value of those is more likely to have gone up than down – and third party liability.
But the most critical factor in evaluating your cover is that the buildings element of your policy should not be based purely on the market value of your home but more importantly on the cost of reconstructing it.
Although these are hard times for builders, there’s no real evidence that construction costs have fallen. In fact, industry experts reckon that as many as two thirds of American homes may be undervalued for rebuilding purposes.
That means, it makes sense, one way or the other, to regularly check that your homeowners’ policy accurately reflects the cost of rebuilding it. There are several ways:
• Many insurers keep records on rebuilding costs and automatically adjust policies to reflect changes.
• Talk to your agent. Insurance agents have their finger on the pulse and know how to get the information you need.
• There are a number of online calculators which claim to be able to produce accurate figures. If you use these, you’re best to crosscheck between several. Beware: some of them charge for the service.
• You can ask a builder to do a walk-through with you and estimate the reconstruction cost.
• You can pay an appraiser to do a full inspection.
Bottom line: lower real estate values are unlikely to offer much opportunity to cut your homeowners’ premium, though there are other ways to tackle this, such as agreeing to pay a higher deductible or using the same insurer for auto as well as property cover.