Why is my homeowner insurance amount more than what I paid for 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: May 10, 2010

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Insurance Question from Fresno, CA

Asked on 05/10/2010

Why is my homeowner insurance amount more than what I paid for my home? NULL

Answer given on May 18, 2010

This is a good question.  The amount you paid for your home is based on the market value at the time of the purchase.  You’re paying for the neighborhood, the school system, how close your home is to the freeway, etc.  You’re also paying for land.

The cost of homeowner’s insurance is based on the cost to rebuild your home in the event of a total loss.  It costs about 25% more to rebuild your home than it did in the first place.  Part of the reason is because it takes a more skilled laborer to build around an existing structure that is partially damaged, than it does to build from scratch. Another part is that it is includes debris removal.

Homeowner’s insurance also pays liability coverage, it pays for your belongings in case they are damaged or are stolen, and it pays for your additional living expenses while you’re away from home, while your home is being repaired due to covered damage.

But the real answer is that your Coverage A, or dwelling coverage, doesn’t fluctuate the same way that the value of your home can fluctuate, depending upon the market.  In a booming market, the value of your home can be much higher than what it costs to build, or rebuild.  In other times, the value is higher than the rebuild cost.

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