How Does the Tax Assessment Affect My Insurance Premiums?

For the past few years, most homeowners have been deranged as they watch their insurance rates go through the rooftops while the value of their homes takes a nosedive. This has given many homeowners the desire to know the relationship between the value of their homes and insurance premiums they pay. It is, however, sad to not that there will be no insurance break for homeowners in the near future, irrespective of the market value of their homes. This is simply because there is no direct link tying the value of the home to the insurance premiums.

The approach adopted by the insurance companies in determining the value of the homes for the purposes of calculating insurance premiums is very different from the approaches adopted by tax assessors in determining the market value of the property. In essence, the market value is never a factor of consideration for the insurance companies. The insurance companies are concerned with what it would cost to rebuild the same kind and quality as your home on the same property. Theirs is therefore actual cost coverage or a replacement cost coverage. The difference between these two costs is nothing but the actual costs factors when depreciation is considered.

Clearly, the factors considered by the insurance companies in determining the value of the property has nothing to do with market factors such as the type of amenities around your property, the value of sold properties in the neighborhood, infrastructure, community parks nearby etc. It implies that if the value of your home took a hit in the last decade, it has no relevance whatsoever to your insurance company and will thus not affect your insurance premiums. Though the premiums aren’t affected in this manner, it doesn’t necessarily imply that the cost of replacing your home shall have not changed. As a matter of fact, it probably has changed.

Even though it is true that the market value has no bearing on the insurance premiums, homeowners are highly encouraged to review their premiums annually since the cost to rebuild the homes are certain to change with every passing. For instance, the cost of constructing your home may have changed through the years and it could now cost more to build your home compared to when you first insured it six years ago. You may have also experienced changes in the building code, such as upgrading your kitchen or adding some square footages to your home. Such changes will potentially affect the cost of replacing your home, the type of coverage and ultimately the amount of insurance premiums you pay.

The other benefits that comes with reviewing insurance premiums on a regular basis is to discover if you qualify for any newly introduced discounts or savings in your company. With such, you will be in a position to make the necessary adjustments to entitle to slightly reduced costs, so that you enjoy maximum cover without necessarily paying a lot in premiums. The last thing you desire is to get a check from your insurance company which is not adequate to meet today’s costs should you need to replace or repair your home.