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Karl Newman, President
Sandi Henke, Communications Director     
NW Insurance Council    
Phone: (503) 465-6800 / (800) 664-4942
Fax: (206) 624-1975
Follow at Twitter/nwinsuranceinfo

Bad move: lowering home or business insurance to match reduced market values is not wise

PORTLAND - Home prices are down more than 30 percent in the Portland area since 2006, but the cost to rebuild a home in Oregon has gone up nearly 14 percent over that same time period. In a difficult economy it may be tempting to save a few dollars by reducing your Homeowners Insurance or coverage for your commercial building to match decreased market values. However, lowering your coverage amount is a risky financial move.

Homeowners Insurance and insurance for commercial buildings is designed to cover the cost of rebuilding, not the market value of a home or commercial structure. Recent studies show that rebuilding costs have climbed during the recession, even as market values plummeted.

"In past decades, market values were always ahead of rebuilding costs. That trend has reversed dramatically," said Karl Newman, NW Insurance Council president. "We encourage homeowners and business owners not to lower their insurance to match market values. If your home or business is destroyed in a fire, you could be stuck paying the difference between your insured amount and the actual cost to rebuild."

Instead work with your agent or insurance company annually to determine the cost to rebuild and insure accordingly.

Research from Xactware, a leading rebuilding cost estimator for the construction and insurance industries, reveals that between 2006 and 2011average reconstruction costs in Oregon rose 13.92 percent. During that same time period, data from the National Association of Realtors shows median home sales prices fell 22.04 percent in the Portland-Vancouver-Beaverton area, 30.34 percent in the Salem area and 18.3 in Eugene-Springfield.

According to Xactware, the national average cost to rebuild rose 15.17 percent between 2006 and 2011. The national median home sales price fell 21.6 percent, according to the National Association of Realtors.

A 2008 survey by Marshall & Swift showed that 64 percent of homeowners in the United States don't have enough insurance to rebuild their homes if they are destroyed. Of those without enough coverage, the average homeowner only has enough insurance to rebuild about 81 percent of the home.

Although most insurance companies periodically update your replacement cost coverage amount, it is your responsibility to make sure you have enough coverage for your home or business and its contents.

NW Insurance Council offers the following tips to help you keep your insurance coverage up to date:

  • Contact your agent or insurance company annually to evaluate the current replacement cost of your home or commercial building. Be sure to include any large remodel projects or additions that could add a substantial amount to your rebuilding costs. Also ask about special coverage for high-value items such as jewelry, art, antiques and coin collections.
  • Marshall & Swift offers homeowners an affordable way to check home replacement costs using their online Accucoverage tool. For $7.95, Accucoverage evaluates your home and gives an estimated rebuilding/replacement cost.
  • Consider separate optional flood and earthquake insurance. Flood and earthquake damage is specifically excluded from standard Homeowners insurance policies and most business insurance policies.
  • Keep an up-to-date home inventory with Free Home Inventory Software from the Insurance Information Institute.
  • Prepare your business to survive a disaster, get Open For Business from the Institute for Business & Home Safety.

For more information on Homeowners and business insurance, visit NW Insurance Council or call (800) 664-4942.

NW Insurance Council is a nonprofit, public-education organization funded by member insurance companies serving Oregon, Washington and Idaho