When Is Changing Homeowners Insurance Important?

Been hearing much jackhammering in your neighborhood lately? It’s probably not just woodpeckers! Depending on where you live, it’s likely you’ve seen (and heard) a lot of new home construction this year. Many people are buying, selling and building, and that’s caused home prices nationally to increase 18.3% year-over-year through June 2022.¹ What’s more, supply chain issues the past two years have impacted the cost of building materials, with prices up 25% overall in 2021 and continuing to rise the first half of 2022.²

Those spikes influence lots of things, but here’s one effect you might not have considered: your homeowners insurance. Yeah, that policy that protects your home and belongings in case of a disaster? It’s one of the must-have types of coverage no homeowner should be without.

But unlike other must-have insurance needs, like term life insurance or identity theft protection, you can’t just set your homeowners insurance policy and forget it. As circumstances in your life and in the market shift, stuff like your home’s value or the price of lumber can throw your coverage out of whack. These days, with both home values and building supply prices shooting for the moon, chances are you’re short on coverage. So it’s important to keep an eye on the numbers to be sure you have coverage that’s just right, at the best price available.

To help you decide if you need to update your homeowners insurance, let’s walk through the details of why it matters, when to update, and how to make the change.

Why Is Making a Change to Homeowners Insurance Important?

Like we mentioned, it’s important to be ready to change homeowners coverage because market values shift all the time—and that affects not only the value of your home, it can also affect the cost of building materials, from roof tiles to floor joists.

Think about it. Let’s say when you bought your dream house, it was valued at $500,000. You and your family love every inch of it, from the screened-in porch to the marble counters you installed yourself. You’ve poured a lot of time, love and money into this thing.

And guess what? Today it’s assessed at a new value of $1 million. This is really working out well! But now imagine the unimaginable. What would happen if a kitchen fire accidentally destroyed your home sweet home overnight? Do you think your original homeowners coverage will cover you for a complete rebuild?

The answer is that it’s extremely unlikely. Your insurance company won’t write you (or a contractor if they’re handling the repairs) a blank check. You’ll only receive the amount specified in your policy, and not a penny more. Think how devastating it would be to follow up a total loss on your home with the news that the policy you were depending on to rebuild will only provide you enough money to build a shack where you used to have a mansion! It happens more often than you’d think.

Homeowners’ coverage amounts are based on the home’s value at the time the policy was written. And that value can go up—or down, sadly. That’s why it’s essential to be sure your coverage keeps pace with your home’s value, whether it’s rising or falling.

The same concept applies to the price of the materials to replace your home after a disaster. Even if homes in your neighborhood aren’t shooting up in value, rebuilding costs can still be affected by other market changes. The cost of materials like lumber, steel, concrete and even paint can rise dramatically in a short time. If your homeowners policy is too skimpy to cover a rebuild, a sudden disaster could leave you short on cash.

When to Change Your Homeowners Insurance

Basically, you should change your homeowners insurance anytime your home’s value gets a bump or when the price of building supplies increase—because when that once-in-a-century hailstorm destroys your roof, you’ll replace it with all new materials. Obviously having any policy in place is a great start, but the price tags for home repairs like these are too big to hope and pray everything works out.

Even if just one of the main factors—home value or material costs—are on the rise, an accidental disaster at your home could put you in a deep hole once you’ve cashed that wimpy insurance check.

It’s always worthwhile to check in with an expert who can teach you the basics and tell you the truth about the way things really are in your housing market. An independent agent will explain how things stand in your area, so you can decide if you need to beef up—or even scale back—your coverage. Our RamseyTrusted agents are great at this stuff! They’re part of our Endorsed Local Providers (ELP) program, and they’re all about getting you the most bang for your buck, without exposing you to more risk than you can handle.

How to Change Your Homeowners Insurance

Step 1: Don’t allow a gap in coverage.

This would only come into play if you were shopping for a better rate with a different vendor (which our ELPs can help you do). Here’s hoping you find a better deal! Just don’t cancel your current policy—or allow it to lapse—until you’ve secured that new rate.

Step 2: Ask how well your coverage reflects current prices.

Homeowners policies typically last for a year and include an option to renew annually. In most cases, you can adjust your coverage at renewal time. Be sure to ask the agent or company who sold you the policy for an estimate of your homeowners insurance, and find out if your coverage level matches current values in your market. If it doesn’t, decide if you need less coverage (because that would save you on premiums) or more (if your policy doesn’t provide enough coverage).

Step 3: Check your policy’s terms and conditions.

If you end up needing to cancel a policy that doesn’t meet your needs, you might be charged a fee or penalty. It’s probably still worth it, but fitting it in your budget could affect how you time the cancelation. (Reminder: no coverage gaps!)

Step 4: Be aware of coverage, limits and deductibles.

All policies have defined coverage, limits and deductibles. You’ll need to keep an eye on these details as you research other companies to find the best policy for your needs. Then again, an independent agent makes these kinds of comparisons for a living, so finding one you can trust is smart!

Step 5: Let the lender know about any policy changes.

Are you debt-free—house and everything? If so, that’s amazing! Congrats! But if you’re still living that mortgage life, be sure to notify the lender of any changes you make to your homeowners coverage. It’s probably one of the things they pay for you out of an escrow account. So they’ll for sure need to know about the switch.

Working With an Independent Agent Can Help You Big Time

Working with an independent agent (instead of a single company) can save you a lot of money when you’re thinking about changing your homeowners insurance. After all, captive agents—that’s industry lingo for agents who work for one company—are only ever going to show you their own prices and options. But an independent agent? That’s someone who will do the legwork to find you the exact right coverage and price to guarantee you’re winning.

How to Get the Perfect Homeowners Insurance Coverage

After reading that inflation and real estate prices can impact your homeowners policy, you might be wondering, How do I know I have the right amount of home insurance coverage?

Great question! When it comes to something as important as protecting your home, we recommend working with an insurance agent who’s part of our Endorsed Local Providers (ELP) program. They can look at your unique situation and help you find the sweet spot of coverage—where you’re protected but not paying for insurance you don’t need. And they’re RamseyTrusted, so you know you’ll be working with the best agents in your area.

Connect with an ELP today!