Tuesday, 4 January 2011
Why Homeowners Insurance Premiums Rise When Value Of Homes Falls
The value of houses in America has dropped over the past five years or so, but the chances are good that you’re actually paying more to insure your home. However, according to housing and insurance industry experts, this is because the cost to rebuild a home hasn’t really changed over the same period of time.
What many people don’t realize is that the cost of homeowners’ insurance is actually based on the price of rebuilding or repairing a house whereas the value of your home is based on its market value along with the land it’s built on. This means while the value of houses has dropped the same can’t really be said for the price construction materials and workers’ labor.
According to the National Association of Insurance Commissioners, the cost of homeowners’ premiums rose just over 60 per cent from the years 2000 to 2007 and then dropped about four per cent in 2008 to an average of $790. But the average price of premiums fell because many homeowners increased their deductibles and dropped some optional coverage features, not because the cost of insuring homes dropped.
Still, some people don’t think it’s fair that it costs more to insure a home even though its value may have dropped by as much as 30 per cent. These people often reduce their coverage or increase their deductibles when the house value drops, but it could be a big mistake if your home suffers damage because it could cost more to rebuild it than the home is actually worth. For example, it might cost $200,000 to rebuild or replace a home that’s valued at $150,000.
Costs on premiums have also risen in coastal areas and those that are subject to natural disasters, such as Texas, Florida, and Louisiana, and these states are among the costliest places to purchase homeowners insurance. A major factor in the cost is where you live as premiums are very regional when it comes to determining their prices.
According to MSNBC, If your homeowners insurance goes up it’s a good idea to ask why and to see if you can get a better rate by improving the home by installing a fire prevention or sprinkler system, etc. Doing something as simple as quitting smoking could also result in lower premiums and you could always shop around for lower rates.
