One of the most common questions we get is:
"Why should I insure my home above or below market value?"
This is a huge misconception about home insurance policies. Insuring your home at the current market value ignores the purpose of what a homeowner's insurance policy is designed for: The cost of replacing or repairing your home in the event that it is destroyed or damaged by a covered peril.
Let's say you own a 2000 sq. ft. two bed/two bath home with a two car garage. The market value of this home can vary greatly due to the 3 magic works of real estate – Location, Location, Location. For example it might be worth the following amount in these locations:
$250,000 in Phoenix
$450,000 in Paradise Valley
$150,000 in Apache Junction
So why shouldn't your home insurance policy change relative to its market value? The answer is quite simple: Regardless of what neighborhood a home is located or the size of the lot it's on, when your home is destroyed in a fire the replacement cost is based solely on the materials and labor required to rebuild the home.
Another confusing factor is regardless the size of the lot your house sits on, it won’t have an effect on your coverage. The simple reason for this….you can’t burn dirt!
So how much should insure your home for exactly? It depends how nice your house is. On average, for a standard house in the phoenix metro area, it’s about $100 per sq. ft. to rebuild. The fancier the house, the more it would cost to rebuild.
Making renovations to your home may change the replacement cost so it's important to adjust your coverage accordingly and be in contact with your insurance agent regularly to ensure that you are covered in case your home is damaged.
AZ Insurance Team
480-535-5709
www.AZInsuranceTeam.com