If you own a home, you likely already have it protected with a homeowners insurance. However, you might not have enough coverage if your home's value increases or appreciates. It's critical to update your policy in the event of home appreciation for several reasons.
Fortunately, an independent insurance agent can help you reevaluate your home insurance needs after property appreciation. They'll review your current policy with you to determine if you're in need of more coverage and help answer any questions you may have. But first, here's a breakdown of what house appreciation is and how it may impact your homeowners insurance needs and rates.
What Is Home Appreciation?
Real estate appreciation refers to a property's value increasing over time. Home appreciation can have numerous positive benefits, including a higher resale value and larger profits when it's time to sell. If the home is an investment property that has appreciated in value, you can also often charge higher rent to tenants, leading to more monthly rental income.
Home value appreciation can also mean your house has gained more equity over time. Equity is the difference between your home's current value and the amount still owed on your mortgage, and it represents how much of the property you own outright. But while these changes due to home appreciation are considered positive by many homeowners, the changes required of your insurance may not be viewed the same way.
How Home Appreciation Can Impact Your Homeowners Insurance Needs
Your dwelling coverage is based on the estimated cost to rebuild or repair your home in case of a covered disaster, such as a fire. Insurance companies consider factors such as square footage and local construction costs.
Your policy benefits are set up to repair or rebuild your damaged or destroyed home. As such, if your home's value increases over time, you'll likely need to increase your coverage through your homeowners policy to fully protect your property if it's badly damaged or destroyed. An independent insurance agent can help you evaluate your home insurance coverage needs based on your home's current value.
When to Increase Your Home Insurance Coverage
You may want to increase your home's replacement cost coverage for many reasons, including those that can influence home appreciation and more. These can include:
- Renovations: Adding square footage by finishing the basement or adding a second floor can add a lot of value to the home. You’ll need to be sure the remodeled parts of your home are protected the same as its original parts. For example, if you spent $30,000 expanding and renovating your kitchen, you might want to increase your dwelling coverage limits to fully protect your upgraded property.
- Construction cost increases: Construction booming in your community is great for a number of reasons, but it can place a strain on local building resources and drive up the cost for materials and labor. You’ll need to be certain that your dwelling coverage can still pay for the complete repairs or rebuilding of your home should you experience a total covered loss.
Other situations that create appreciation in home value often don’t require you to increase your homeowners insurance coverage. For example, homes that appreciate because of a spike in the local real estate market typically do not require increased homeowners insurance coverage. Your independent insurance agent can help you determine whether your home requires more coverage due to appreciation.
3 Reasons Your Home Value May Appreciate
Many people don’t think much about the changes and improvements they make to their homes. Adding a swimming pool, building a deck, or going solar can certainly increase your property's sticker price when you decide to sell. Below are examples of three common reasons a residence may appreciate in value over time.
Internal upgrades
Over the course of owning your home, there’s a good chance you’ll upgrade some appliances or features. Maybe you decided to set up a fully equipped home gym or swap out all the kitchen's electronics for stainless steel models.
Or perhaps you did a variety of improvements. Is your master bathroom now a home spa? Did you spice up your outdoor living space with a built-in grill, wine cooler, and sound system? These changes can cause your home's value to appreciate. In turn, you'll likely want to increase your home insurance coverage.
Home renovations
You might have decided to expand your modest ranch-style home from 1,000 square feet to 1,600 square feet. Now you have an extra bathroom, more bedrooms, and a large family room with a stone fireplace. These changes can add quite a bit to the assessed value.
Outdoor areas and secondary buildings count toward your property’s overall price, too. Even enhancements such as slab granite countertops or double convection ovens can contribute to a higher resale value and require more insurance coverage.
Real estate market soars
Location is the name of the game when it comes to real estate sales. Perhaps your dwelling is now in an up-and-coming trendy neighborhood, which automatically makes it more valuable. Over time, a specialty shopping district might be built in your area, or a highly desirable school district can get reassigned, which can equal home appreciation and the need for more coverage.
How Much Has My Home Appreciated?
If you're wondering how much your home has appreciated over time, there are many helpful tools available to help you. You can find home appreciation calculators online to determine just how much your home's value has changed. Once you've determined this new value, contact your independent insurance agent to update your home insurance policy.
Here's How an Independent Insurance Agent Can Help
Local independent insurance agents can help you determine exactly how much homeowners insurance is necessary to fully protect your home, even once its value has appreciated. Your agent can help you increase your existing protection or shop and compare new policies from several carriers. And down the road, your agent can also help you file home insurance claims if necessary.
Sources
https://www.rocketmortgage.com/learn/home-appreciation
