Posted by Jonathan J. Miller -Wednesday, February 15, 2006, 12:01 AM
With the rapid run-up in real estate prices over the past several years, its probably not a bad idea to make sure that your insurance coverage is adequate especially if you did a major renovation or expansion. This Real Estate Journal article Taking Inventory of Your Home To Get Adequate Insurance applies more to personal property within the home.
However, insurable value, the value of your home should catastrophy strike, is the amount needed to replace the existing improvement (the house). It is NOT the purchase price of your home because a large portion of the value of your property is found in the land. This concept applies to condos and co-ops as well.
This is one of the most misunderstood aspects of housing – values that appreciate and depreciate relate largely to the land value, not the value of the house. Yes, sure, the cost to replace your home will increase due to higher labor costs, higher cost of materials, inflation, etc. during a tight housing market and renovations and extensions or expansions may also impact value as well, but the value largely runs with the land.