March 2024
Replacement Value
On average, homes appreciate about 3%–5% annually. In some markets, like Southern California, homes appreciate about 7% a year. Although a home’s market value is important when selling or refinancing your home, it has little to do with your replacement value. Your homeowner’s policy involves the cost of rebuilding your home from the ground up in the event of a covered peril like a fire or strong winds/hurricane.
However, any time significant improvements are made to the home, you should review your policy limits with your insurance professional.
· Did you build an extra bedroom, or some other type of addition?
· Did you renovate the kitchen or bathrooms?
· Did you build a swimming pool?
Another important consideration is outside detached structures. Most “other structures” are only covered at 10% of the dwelling’s value. This is not sufficient if you’ve added a custom fence or an ADU or have converted your detached garage into livable square footage.
Do I have enough coverage?
Prior to 2021, the average 10-yearinflation for residential construction was about 5%. In 2021, that figure soared to 13.4%! Given that both 2022 and 2023 were 9.3%, it’s anticipated that the future forecast will prove similar. This means that if you need to rebuild your home, the replacement cost is going to be significant. For many, the out-of-pocket expense due to gaps in their coverage will be devastating. To avoid this, make sure your policy includes one of the following:
Extended replacement cost
o This will pay up to a given percentage above your current dwelling limit to help hedge against inflation.
Guaranteed replacement cost
o This will pay as much as necessary to rebuild your home.
What about my stuff?
Your personal property includes furniture, clothing, collectible items, and sporting and musical equipment. It’s important to take inventory of purchases and save/scan receipts in the event you ever need to file a claim. You should know that typical coverage amounts are low. Artwork, jewelry, and electronics often need extended coverage or their own separate policies. Surprisingly, small electronics are not covered under standard personal property. Smartphones, tablets, laptops, and other devices may need their own separate coverage. It’s worth reviewing your coverage for these items and exploring the cost of manufacturer warranties(e.g., AppleCare, etc.)
Personal property coverage offers two varieties:
Replacement Cost Value (RCV)
o This is the best coverage, allowing you to replace the item at its current market value. RCV coverage makes you whole.
Actual Cash Value (ACV)
o This replaces the item at a depreciated value. You wouldn’t want this type of coverage if your belongings are expensive.
Insurance is designed to provide you with peace of mind. An annual review of your homeowner’s insurance will ensure that your family and belongings are properly protected. If you haven’t conducted a review lately, contact your insurance agent or your Morton financial advisor for additional information and advice.
Disclosure: Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.
