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Don't Cut Home Insurance Kimberly Lankford - Chicago Tribune Kiplinger Consumer News Service Some wonder if it's a good idea to reduce their homeowners insurance coverage if the market value of their home has declined. You should never lower the amount your house is insured for just because housing prices have dropped. Cutting your insurance could leave you with insufficient coverage in the event of a disaster. The market value of your home and its insurance value can vary widely because they are based on different assumptions and calculations. The insurance value is based on what it would cost to rebuild the house, not on what you paid for it. And although housing prices have dropped, rebuilding costs have not. On the other hand, the sales price takes into account the value of the land, which isn't factored into the insurance value; the land could still be valuable even if your home burned down. To calculate how much it might cost to rebuild based on your home's size, building materials and any special features, try the calculator at accucoverage.com. (Note from Chris: I do not have any affiliation with accucoverage.com) For $7.95, you'll get an immediate estimate of your home's insurance value from Marshall & Swift/Boeckh, which provides building-cost estimates to the insurance industry. It's also a good idea to rerun the numbers after you make any major home improvements and to notify your insurer if you need to increase your coverage. You can usually boost your insurance limit by tens of thousands of dollars without making your premiums go through the roof. To save money on your homeowners insurance, however, you could increase your deductible. Increasing your deductible to $1,000 from $500 could lower your premium by as much as 25 percent. And increasing your deductible will discourage you from filing small claims that could jeopardize your insurer's claims-free discount or get you dropped by your insurer.
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