Q: What’s the difference between Insured Value on my home insurance policy, and the market value of my home?
A: Home insurance is concerned with putting your home back the way it was – the cost of repairing or replacing the home. Depending upon your area, the market value may be significantly higher or lower. If the market is low in your area, homes are likely selling for less than what they would cost to build. In such a situation, the insured value of your home will be higher than the market value. Why? Because if your home is destroyed, you still need to build it back. That is what the insurance policy does. The opposite can also be true, depending upon where you live.
The main idea is to insure your home for what it would cost to replace your home, so replacement cost is your goal. If you don’t know, ask a qualified contractor for an estimate. We can certainly provide guidelines, but nothing beats a contractor’s expertise.
Q: Am I penalized if I underinsure my home?
A: The goal of insurance is to put your home back the way it was before the claim occurred. Insurance policies are built upon the assumption the coverage is adequate to do so. Thus, an underinsured penalty can occur if enough coverage was not purchased. There are allowances since most penalties do not kick in until you are underinsured by more than 20%. Check your policy or ask your agent for details. Reference these posts for more information:
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