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Why do insurance companies increase the value of my home every year?

Home Insurance

By Joanne Lemna | June 17, 2016

Did your home insurance premiums go up on your renewal? Even if you didn’t have a claim? It can be frustrating to see your home insurance costs go up year after year, especially if you don’t even know why the price is increasing. This article will help explain why insurance companies increase the value of your home every year and how that impacts your home insurance premiums.

Insurance companies rebuild your home.

To insurance companies, the value of your home isn’t the price it would fetch if you sold it. It’s the cost to repair or rebuild your home to the same standard if it’s damaged or destroyed. This includes:

  • Debris removal
  • Building materials
  • Labour
  • Home systems and appliances
  • Replacing your belongings

This rebuild or replacement value directly impacts the cost of your home insurance.

Inflation and Other Increases in Cost

Unfortunately, the cost to rebuild your home doesn’t stay static. It changes with the market and can be impacted by the following:

  • Inflation
  • Labour costs
  • Price of raw materials
  • Price of manufactured goods
  • Supply and demand

An example of this is when drivers buy gas. We’re all used to the fluctuations in price based on the price of oil, time of year, and even day of the week. Gas prices usually increase over summer due to increased demand for travel. While drivers grumble about the cost, the increases are just part of the economy.

Your home’s replacement value changes each year.

While the market value of a home has no bearing on your insurance, the cost to rebuild is essential. This factor fluctuates. Like all consumer goods, the cost of construction and building materials changes over time. As a result, it may cost more to build your home today than it did when it was first insured say five years ago. While nothing may have changed in your home, the fact is it would cost more due to the increased costs in labour and construction materials.

In a year where we didn’t see much inflation or increases in construction labour and material costs, your home insurance would be less likely to go up.

Your home insurance premiums are impacted by a number of other factors other than your home’s value. If you have concerns, please talk to your broker. They can explain what is going on and get your other quotes to compare prices.

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