Lowering Home Insurance Coverage in a Recession- Wise Idea or Foolish Mistake?

Because home values are dropping across the nation, homeowners often inquire about their homeowners insurance coverage- and whether they should reduce their coverage.  The issue here is that your homeowners insurance coverage is not based on the market value of your home like many mistakenly believe. In actuality, your homeowners insurance coverage is based on the replacement cost value of your home- and lowering your coverage could put you in the middle of a major financial risk.

The amount of coverage you have to replace your home is called your dwelling coverage. Dwelling coverage protects the investment you have in your home and the amount of dwelling coverage you have should reflect the cost it would take to replace your home in the event of a total loss.

Home Insurance agents determine the amount of dwelling coverage you need by multiplying the square footage of your home by local construction costs per square foot. So, if you had a 2000 sq. ft. home and your local construction cost was $180 sq. ft. , your dwelling coverage would be $360,000.  Notice, this calculation differs greatly from market value as it does not consider the value of land beneath your home. The same home may have a market value of $440,000.

To help determine your home insurance dwelling coverage and replacement value, visit this home insurance calculator and enter your zip code and square footage to get an estimate. As always, a home insurance agent can provide you with an exact dwelling coverage amount for your specific home.