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As Property Values Explode, Should You Increase Your Homeowners Insurance Policy Coverage?

As Property Values Explode, Should You Increase Your Homeowners Insurance Policy Coverage?

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As Property Values Explode, Should You Increase Your Homeowners Insurance Policy Coverage? Photo by Blake Wheeler on Unsplash https://unsplash.com/@blakesox?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText

The U.S. housing market is searing hot right now, property values are soaring and experts say it’s not going to cool anytime soon.

So should you increase your homeowners’ insurance policy? It depends.

In June, home prices grew at a record rate, according to the latest edition of the S&P CoreLogic Case-Shiller Home Price Index. Home prices increased 18.6 percent from a year ago in June, marking the third consecutive month of record growth in the 30-year-plus history of the index, Market Watch reported.

The strength in the U.S. housing market is being driven in part by the reaction to the covid pandemic, as potential buyers move from urban apartments to suburban homes, according to Craig J. Lazzara, managing director and global head of index investment strategy at S&P.

In addition to property values increasing, so too are various aspects of home maintenance such as building materials and labor.

Building material costs have spiked 26.1 percent on average over the past 12 months, according to a June National Association of Home Builders (NAHB) survey.

With property values increasing along with the increase in building materials, one would think a higher insurance policy would be necessary.

“The value increase alone may not necessarily require you to purchase additional coverage since your homeowner’s policy premium (price) is based on the estimated cost to repair or replace your home in the event it is damaged or destroyed,” insurance agency Glenn Insurance reported.


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What you need to look at is the cost per square foot to rebuild the structure. Your land values have little to do with your coverage amount because that is based on the cost of construction, according to Glenn Insurance.

While construction prices for everything from lumber, steel, roofing materials are on the rise, some homeowners’ policies include inflation guard coverage to account for inflationary pressures on construction costs, Glenn Insurance reported. If you have this, it might not be necessary to increase your policy.

Whether or not you should increase your policy also depends on your location.

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Some 50,000 homeowner insurance policies in Florida are getting dropped by three insurance companies. Other homeowners in South Florida and the Treasure Coast on the state’s east coast saw their premium rates increase by 20 percent or more. While the damage caused by storms is part of the reason for policy price spikes, the major problem driving up the costs of insurance in the state is litigation, WPTV reported.

Insurance companies alone paid nearly $3 billion in lawsuit costs, according to a report presented to the Florida Legislature analyzing the state’s property insurance market in 2019.

Photo by Blake Wheeler on Unsplash