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As the housing market slows, and home prices
begin to drop, homeowners should not be thinking that they should automatically
reduce their amount of homeowner’s insurance coverage. The amount of coverage a
property requires is based on the replacement value and not on its market value.
Therefore, fluctuations in the market don’t always correlate with changes in homeowner’s
insurance premiums and coverage.
Most homeowner’s insurance policies provide four fundamental
types of coverage, all of which are not affected by fluctuating property prices:
- Rebuilding of the structure.
- Replacement of personal property,
- Liability protection,
- Reimbursement of living expenses for being displaced out the home.
If you considered making adjustments to your homeowner’s
insurance policy insurance to meet your changing financial situation; maybe you
should consider the possibility of optimizing it instead. Review your policy
every year and make the necessary adjustments to your policy limits, adding
additional coverage for recent home improvements, or removing extra policy
riders for valuable possessions that may have been sold. Rates continually
fluctuate, and can vary by hundreds of dollars from company to company;
therefore, an annual review also gives home owners the opportunity to realize
significant savings by simply getting a couple quotes.
As home prices begin to drop, and the cost of mortgage
payments increase, homeowners insurance can offer some financial flexibility
that can help offset the increase. In such a case, home owners should look for
multi-policy insurance. For example, if your auto insurance company also sells
homeowners insurance, you may be eligible to receive a substantial discount off
your premium. Also, increasing the deductible by just a few hundred dollars can
make a significant difference in the cost of the premium; you may save nearly up
to 25%. Even further, there are dozens of homeowner’s insurance discounts that
go unrecognized by many consumers. Even though they seem ordinary, you may be
able get a lower premium if your home has safety features such as dead-bolt
locks, smoke detectors, an alarm system, storm shutters or fire retardant
roofing material.
Fluctuating housing markets can distort reality, and often
times are blown out of proportion by the polarized opinions that informally
define them. In the confusion and uncertainty, home owners should not overreact
and automatically change their homeowner’s insurance coverage. Instead, homeowner’s
insurance policies should be evaluated as a whole, taking into consideration
the cost of rebuilding the structure, replacing possessions, and protecting
against liability lawsuits that threaten the home owners.
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