If your home were seriously damaged or completely destroyed tomorrow, would your homeowners insurance provide enough coverage to rebuild it?
It’s an important question, and one many homeowners don’t think about until they need to file a claim.
One of the biggest misconceptions about homeowners insurance is that the amount your home is insured for should match its market value. That’s not necessarily the case.
Your home’s market value and its replacement cost are two very different numbers, and understanding the difference can help make sure you have the right amount of coverage.
Market Value vs. Replacement Cost
Market value is what your home could potentially sell for in today’s real estate market. It can be influenced by factors such as:
- Location
- Neighborhood
- Lot size
- Local real estate demand
- Comparable home sales
- School districts and nearby amenities
- Current housing market conditions
Replacement cost, on the other hand, is an estimate of what it would cost to rebuild your home with similar materials and construction after a covered loss.
Replacement cost takes into consideration things such as:
- Construction materials
- Labor costs
- Demolition and debris removal
- Permits and fees
- Local building requirements
- Architectural or professional services
- The size and features of the home
That means your home’s replacement cost can be significantly different from its market value.
Why Your Albuquerque-Area Home May Have Unique Considerations
Here in New Mexico, construction costs and building requirements can vary significantly from one property to another.
Homes may include stucco exteriors, tile roofs, custom finishes, adobe or adobe-style construction, upgraded kitchens and bathrooms, and other features that can affect rebuilding costs.
Construction costs can also change over time.
A policy that adequately covered your home several years ago may not necessarily provide the same level of protection against today’s construction and labor costs.
What Happens If Your Home Is Underinsured?
Imagine your home is insured for $300,000, but after a major covered loss, the estimated cost to rebuild it is $400,000.
That $100,000 difference could potentially leave you with a significant financial burden.
This is why it’s important to periodically review your dwelling coverage rather than simply assuming the amount on your policy is still appropriate.
Your Home’s Value Can Change Even If You Aren’t Selling
You don’t have to make major renovations for your home’s rebuilding cost to change.
Construction materials, labor, contractor availability and local building requirements can all change over time.
And if you’ve completed improvements such as:
- A kitchen remodel
- Bathroom renovations
- Room additions
- New flooring
- Custom cabinetry
- Upgraded fixtures
- A new roof
- Other significant improvements
Your home’s estimated replacement cost may need to be reevaluated.
Don’t Forget About More Than Just the House
When reviewing your homeowners insurance, dwelling coverage isn’t the only piece worth considering.
A complete insurance review can also help you evaluate coverage for:
Other structures: This may include detached garages, sheds, workshops, fences and other structures on your property.
Personal belongings: Your furniture, clothing, electronics, appliances and other possessions may also need adequate protection.
Additional living expenses: If a covered loss makes your home temporarily uninhabitable, you may need coverage for certain additional living expenses while repairs are being completed.
Liability: Your homeowners policy can also provide important personal liability protection.
When Was the Last Time You Reviewed Your Coverage?
Insurance isn’t something you should set and forget.
If it’s been several years since your last policy review, or you’ve made improvements to your home, it may be worth taking another look at your coverage.
At ABQ Insurance, we can help you understand what your policy covers and whether your current coverage still makes sense for your home and circumstances.
Don’t Wait Until You Have a Claim to Find Out.
The best time to review your homeowners insurance is before something happens.
If you’re unsure whether your home has enough coverage to rebuild today, reach out to ABQ Insurance. We’re here to help New Mexico homeowners make informed decisions about protecting what they’ve worked so hard to build.
ABQ Insurance
Home • Auto • RV • Boat Insurance
Albuquerque: 505-217-2100
Rio Rancho: 505-433-6990
Insurance coverage, exclusions, limits and conditions vary by policy. Talk with your insurance professional to determine the coverage that’s appropriate for your individual situation.
