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Homeowner Insurance Rates
Clients sometimes ask me why, with the drop in the housing market, there is not a similar drop in homeowner insurance rates. After all, they say, if their house is worth less than it was a few years ago, why does it cost more to insure it?
The answer is that the cost of buying a house and the cost of replacing a house are not the same thing. The value of your house if you were to sell it may very well be less than it was in recent years. But if your house burns down, you are not selling it. You are rebuilding it. And that is a different matter.
The cost of rebuilding houses continues to go up, as the cost of labor and materials goes up. Of course if your house were destroyed, you would want to rebuild it to be the equal of the house you lost. You would want to use top-notch contractors and materials. And you – or in this case, your insurance company – would pay more for them than they would have paid a few years ago.
There are other things that factor in. For example, if your house was built as part of a subdivision, in which a contractor built many houses at the same time, the contractor benefited from economies of scale because he was buying and shipping materials for multiple homes. But if that contractor rebuilds your home after a fire, for example, those economies of scale no longer apply.
Also, insurance premiums account for the worst possible scenarios. Although there may be a construction slowdown at the moment in some areas and with some contractors, that may not apply to your situation. If your house were destroyed, you certainly would want it rebuilt quickly, by the contractor you chose.
Insurers work hard to keep premium costs down, but they also must price the coverage fairly. That way, if you have a loss, you will be able to repair or rebuild your home the way you want, with a minimum of hassle.
Finally, I’d like to remind you that holiday candles are beautiful, but they also can be dangerous. Please don’t leave candles burning unattended. And if you have a real Christmas tree, don’t leave the lights lit while you are not home. Every year, some people lose their homes during the holidays because of fires related to candles and Christmas trees.
We at The Bensman Group wish all our clients and friends a safe and happy holiday season.