Am I carrying too much insurance on my home?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jun 23, 2013

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Insurance Question from Holyoke, MA

Asked on 06/23/2013

Am I carrying too much insurance on my home? My home is tax assessed at 70000, at say 25% higher for market value (87500) am I paying too much insurance if they are covering me for 225000

Answer given on July 16, 2013

Homeowner insurance is written in an amount that should protect you in case of a total loss to the home. This would be the replacement cost of the home. The coverage is based on local building costs, including materials and labor.The tax assessment is something used by the state or county to determine your tax rate. There are deductions usually allowed if the property is owner occupied as well as other adjustments as determined by the assessor. This has no reflection on its replacement cost.The market value is also based on local values of the home. It does not affect the replacement cost. You could be living in a depressed area as far as market value goes, but the rebuilding costs remain the same.You need to consider the cost of the materials used to build the home – lumber, concrete for the foundation, drywall, flooring, roofing and everything else. Then the labor costs for the area and the profit the builder would expect. This could make the replacement cost much higher than the market value.If you are still concerned, talk to your agent. They may know the local building costs and could explain how the value has been determined.

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