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Home insurance During a Housing Decline

If you are like most consumers, you do not read your home insurance policy for the heck of it. You find no fun in curling up with a stack of insurance policy documents on a rainy Sunday afternoon, and you wouldn’t miss out on a dinner date so that you could study your policy spec pages. While this is certainly understandable, neglecting to look over your insurance policy each year when it is renewed could result in your overpayment of premium.

During the last 5 years, home values have fallen dramatically – although this decline has been felt more severely in some states – but almost everyone in the United States has been affected. If your home is still insured for the amount your property was worth at the height of the housing boom, then you could be paying for insurance benefits that are no longer appropriate.

Consider this, in March 2007, the median sale price for new houses in the U.S. according to the U.S. Census was $262,600. In July of 2010, that number had dropped to $204,000. If you bought your home for the median price in 2007 and your insurance policy still offered that amount of benefit, then you might be over-insured by about 22 percent. What do you think making that adjustment would do to your policy premium?

But before you call your insurance company to reduce your amount of insurance, be sure to understand fully what rebuilding costs might be in your neighborhood. Depending on material supply, codes, and housing demand, you might be facing some stiff rebuilding expenses that make the additional insurance amount not only necessary, but vital. Since this is the number most insurance policies are based on, it’s important to be familiar with it.

September 6, 2010

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