Home Appreciation: Should I Change My Homeowners Coverage?

Most Americans grumble about their home values going down. It makes you wonder if home values ever increase (or appreciate).  In some ways, appreciation is like a unicorn — something we’ve all heard about but rarely see. 

So what are the different ways your dwelling can appreciate in value? Should you change up your homeowners insurance policy because of an increase in home value? 

Take a look at some basic info we put together for those fortunate souls experiencing home appreciation. 

Four Ways Your Residence Value May Increase

Many people don’t think much about the changes and improvements they make to their homes. Adding a swimming pool, building a deck, going solar will certainly pump up your sticker price when (and if) you decide to sell. Below are examples of the four common ways a dwelling may appreciate. 

New Purchases

Over the course of owning your dwelling there’s a good chance you’ll upgrade some appliances or buy yourself some special toys. Maybe you just set up a fully equipped home gym. Or you might have brought home a 75-inch 4K TV with all the bells and whistles.  Or you got a fabulous painting from your favorite up-and-coming artist. 

Home Renovations

Your modest ranch style dwelling went from 1,000 square feet to 1,600 square feet. Now you have an extra bathroom, more bedrooms, and a huge family room with a stone fireplace.  That’s going to add quite a bit to the assessed value. 

Or perhaps you did a variety of improvements. Is your master bathroom now a home spa? Did you jazz up your outdoor living space with built-in grill, wine cooler, and sound system? 

Outdoor areas and secondary buildings count towards your property’s overall price too. Even the enhancements like slab granite countertops or double convection ovens can contribute to a high-priced homestead. 

Real Estate Market Soars

Location is the name of the game when it comes to real estate sales. Perhaps your dwelling is now in a trendy neighborhood which automatically makes it more valuable. Over time a specialty shopping district might pop up or highly desirable school districts can get reassigned which equals home appreciation. 

Home Business

Starting a business that’s based in your home may be convenient (um, working in your pajamas) but it kinda changes your residential value. Businesses have equipment, inventory, and other valuable items that are specific to the company’s work. 

These things don’t necessarily increase the sale price of your house but they do increase the content within the home. 

Running a home business can also complicate insurance matters since you really should have everything used for and owned by the business protected under a separate business owners policy. 

If any of these situations apply to your humble abode then you’ll want to talk with your agent to make sure your insurance coverage is just right. 

 

Appreciation Means More Coverage (or Not) 

Your dwelling coverage is based on the estimated cost to rebuild or repair your home in case of fire, wind, hail, or other damages. Insurance companies take into consideration things like the square footage and local construction costs. 

Your policy benefits are set up with the purpose of fixing your broken home. Homes that appreciate because of a spike in the local real estate market do not need to have their insurance plans increased too. 

 

There are two reasons why you would want to increase your replacement coverage:

Renovations: Adding square footage by finishing the basement or adding a second floor can add a lot of value to the home. You’ll need to be sure the remodeled parts of your home are protected the same as the original parts of the house. 

Construction Costs Go Up: Construction booming in your community is great for a number of reasons, yet it puts a strain on local building resources which ultimately drives up the cost for materials and labor. You’ll want to be sure the dwelling coverage benefit you signed up for ten years ago will still pay for repairing or replacing your home should a disaster strike. 

Other situations that create appreciation in home value usually don’t need you to increase your homeowners insurance coverage.