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Dwelling on Insurance

Got my annual homeowners bill from State Farm the other day, with the annual 15-20% rate hike. My bill has doubled over the past 7 years, even though I've never made a claim. I guess they can afford to be "Like a Good Neighbor" if all you ever do is send them money...

Anyway, I'm sure they are a fine insurance company, if a claim needs to be paid --- the point here is not to bash them. However, I did decide to investigate if another company could offer me comparable coverage for less. The answer was yes.... and in fact my new premium will be about 45% lower!

Why the big change? Turns out it has to do with the part of the policy that covers "Dwelling". This coverage deals with how much the insurance company will pay to rebuild your home should it be destroyed. It is NOT a market value figure --- the value of your home may be going up rapidly, but this is due to land and location appreciation --- not the cost to rebuild. No matter how much you insure your dwelling for, the insurance company will only pay, at most, what it costs to rebuild a like structure.

This dwelling coverage figure tends to be automatically indexed for inflation each year, which will then impact your overall premium. (This is probably what has caused my State Farm increase each year).

However, if you are overinsured to start with, then you will become even more overinsured each year as this indexing happens. That is what happened in my situation --- and the dwelling coverage cost is a big part of the policy cost.

So, if you haven't priced homeowners insurance lately, you might want to compare options. Visit our homeowner's insurance page for more information.

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