How To Negotiate A Change In Your Home Insurance Value

If you own a home, you must have homeowners insurance to protect it. If your home is damaged by fire, wind, hail, or other natural disasters, you will be responsible for the cost of repairs.

The amount of home insurance coverage you require differs from the price you paid for your home. However, if your monthly premiums for home insurance continue to rise year after year, you may be wondering why your home's insured value appears to be high.

If you disagree with the listed dwelling's value or the estimated reconstruction cost of your home, you have several options. This is true regardless of whether you believe it is too low or too high.

Whatever your monthly premium for home insurance is, it's critical to review your coverage and premiums at least once a year. You want to ensure that the insurance value, as well as the premium you pay, are correct. This ensures that you are not overpaying or underpaying for your property insurance.

How Can You Change the Home Value of Your Policy?

The only way to know if the value of your insurance is correct is to annually review the values listed on your policy. This will assist you in ensuring that you have the appropriate amount of insurance.

If you believe the insured values of your home and possessions are too low, you can easily adjust your policy. You may be able to add coverage by endorsement as well.

Alternatively, you may believe that your home is overinsured. When you look at your insurance policy, you may notice that the value of your home has risen significantly over the years. As a result, you now have more insurance coverage than you require.

You may be correct in believing that your home is overpriced. However, two out of every three homes in America are underinsured, and people continue to believe that their insurance is too expensive.

How Do Insurers Set Home Value?

The cost of home insurance can frustrate both new and long-term homeowners. New homeowners are frequently surprised by the cost of their plan. People who have had coverage for a long time become frustrated when their premiums rise while the value of their home does not.

If you have a large home insurance claim, you may encounter difficulties during the claims process. If you have underinsured your home, this is more likely to occur. Despite this, many homeowners look for ways to save money on their insurance.

Your annual premium is determined by many factors other than the market value of your home. These are some examples:

  • Costs to repair or replace the building
  • The age of the home
  • The location of the home
  • The number of people living there
  • The size of the home
  • Your past claims history

The precise method by which insurance companies calculate premiums is kept confidential. Most, however, will make use of these variables. Some people may even use more.

Why Do Dwelling Values Go Up? 

You may decide that your dwelling value (the amount paid by insurance for the physical house) is excessive. To determine whether this is correct, you must first understand the primary reasons why this value rises.

Your home insurance policy's dwelling value may rise due to one of three factors: inflation, insurance inspection, or the cost of reconstruction.

Inflation

Inflation protection is built into your home insurance policy. This means that the insured value of the dwelling increases by a small percentage every year.

This inflation increase may become quite significant over the next five to ten years. Because this is automatic, the accuracy is not always checked. This value may need to be reviewed from time to time to ensure it is not overinflated.

Inspection

Your insurer may send an evaluator to your home for an insurance home inspection on occasion. The inspector will examine the home's condition. They will also estimate the cost of reconstruction.

Depending on what the inspector discovers, your home insurer may recommend an increase in the dwelling value.

Reconstruction

You might have recently purchased a new home and are insuring it for the first time. However, your insurance agent or broker has already done some calculations.

They calculated the insured dwelling reconstruction cost using a standard cost tool and the basic information you provided. This is the cost of rebuilding your house to the same standard as it is now.

A home with expensive finishes and three levels, for example, has a high reconstruction cost. In comparison, the cost of rebuilding a one-story house with basic finishes is much lower.

If you do any work on your house while you're still living there, such as adding new rooms or updating the kitchen and bathrooms, the cost of reconstruction rises. This means that your insurance will rise as well.

What If You Don't Agree With the Insured Value?

You may believe that when an insurance company sends you something, it is indelible. However, the estimate for your home's reconstruction may be incorrect.

The purpose of insurance is to safeguard your assets. If you suspect something is wrong, you have the right to contact your agent and ask questions or request a review.

If you have a strong case, your broker or agent will often submit your request to the insurance underwriter. They will review your case and notify you if the value can be changed.

Changes for Inflation

Insurance companies include inflation adjustment clauses in their policies. These will safeguard you when you insure your home.

The plan is that if you insure your home and then have a claim five years later, you will not fall short of the amount of money needed to rebuild. The inflation clause ensures that your insurance covers the cost of inflation.

The accuracy of this adjustment is determined by whether your home was originally insured at the correct value. It also assumes that the cost of materials and construction has risen due to inflation since the last time you insured your home. In some cases, one of these factors may be incorrect.

Are There Ways to Negotiate the Insured Value?

Speaking with your agent about the value of your home may not result in an adjustment. If you still disagree with the insurance provider's figures, you can try to bargain.

Begin with one of these three strategies.

Double-Check the Calculations

Request that your insurance company double-check their calculations.

Check the square footage that they used. Then, compare their cost per square foot to the general standard in your area, as reported by local builders.

Based on these figures, you can always try to negotiate with the insurance company. They might offer you a compromise or a different solution.

Shop Around

Contact a second or even third home insurance company. Inquire where they would set the cost of your home's reconstruction. They should be able to provide you with a quote.

If there is a price difference, inquire about it. If all of the information is the same as what your other insurer had, the prices should be comparable because insurers use similar tools to calculate costs.

You might decide to switch to this new insurer. You can also take these figures to your current agent to see if they will match the rate.

Get an Independent Appraiser

Employ an independent appraiser who is approved by insurance companies to perform insurance appraisals. Make sure your insurance company will accept the report your appraiser will provide before proceeding.

The appraiser must use tools and methods that are insurance company approved. You don't want to spend money on something that your insurance company won't even cover.

A third-party appraisal may not result in a lower home value. In many cases, these in-house appraisals will be more accurate than ones done by insurance companies. As a result, they may result in higher appraisal values.

They do, in some cases, result in lower appraisal amounts. The difference, though, would rarely be large.

You should inform an appraiser of the estimate you already have before hiring them. You can also tell them how much your insurer paid per square foot.

A good local appraiser will be able to tell you right away if that figure is within the normal range. This could save you both money and time.

What Are Coverage Requirements and Policy Types?

Insurance companies frequently provide various types of home insurance coverage.

Guaranteed Replacement Cost

Guaranteed replacement cost insurance will cover you up to the stated replacement value plus a percentage of the insured dwelling value. This additional percentage is for if the cost of reconstruction is higher than anticipated in the event of a claim. You will not have to pay the additional cost out of pocket.

Some companies may limit the guaranteed value to 125% of the insured value of your home. Others may promise a replacement "no matter what the cost."

If you're not sure what kind of home insurance you have, go over your policy. If you are still unsure, you can consult with your agent.

Guaranteed replacement coverage typically requires you to insure up to 100% of your home's assessed reconstruction cost. This is the best type of coverage because it protects you in any situation. However, there are less expensive alternatives. 

Replacement Cost

Replacement cost is not the same as guaranteed replacement cost. It will not pay out more than the insured amount in the event of a claim.

If you believe your evaluation is excessive, you may not require guaranteed replacement cost. However, you should exercise caution before changing your policy.

Will a sum less than the assessed dwelling value be sufficient to cover you in the event of a claim? You can take your chances if you are at ease. Inquire with your insurance company if they can reduce your insurance costs by using replacement cost rather than guaranteed replacement cost.

Typically, the conditions for receiving replacement costs are that you insure to a certain percentage of your home's assessed dwelling value. Different insurers provide various plans. These plans typically require insurance coverage of 80% or 85% of the reconstruction value. 

Insurance coverage varies by state. Make sure to ask your insurer about these policy values.

Knowing this ahead of time may help you avoid the entire debate over whether or not the value is correct. This provides you with a safe middle ground if you are willing to take the risk.

What Else Changes If You Increase or Reduce Your Insured Value?

Many homeowner insurance policy coverages are set as a percentage of the insured dwelling value. Personal belongings and contents, for example, may be covered at 50% of the building value. Your extra living expenses could be 10% or 20% of the total insured value.

If the insured dwelling value changes, make sure to review how it will affect the rest of your policy's coverages. This is especially true when it comes to your home's contents and personal belongings.

The value of the items in your home may be much higher than the averages set by online calculators. In these cases, you should exercise caution when lowering the value of your home. It may also lower the associated insurance amounts for:

Are There Other Way to Save on Insurance Costs?

You can go through all of the steps to figure out why your home's insured value is so high. You could try to bargain with your agent.

Finally, you may want to look for ways to save money on your plan. There are several options.

  • Deductible: Increasing your policy's deductible could save you up to 40% on your costs.
  • Bundling: Request a quote for your home and auto insurance from the same company to save money.
  • Purchase a new policy: If you are canceling a policy in the middle of the term or before your insurance renewal to save money or get more coverage, it is advantageous to cancel your policy early.