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Do Homeowner's Insurance Rates Go Down if Property Values Go Down?

by Don Rafner

If you took out a mortgage loan to finance the purchase of your home, you're also paying for homeowners insurance. Mortgage lenders require borrowers to take out insurance as a form of protection to them: If your home is damaged or destroyed, you won't be as likely to walk away from your mortgage loan if you have the insurance coverage you need to rebuild your property. Your homeowners insurance rate can rise or fall depending on several factors. But you might be surprised to learn that your home's value isn't one of them.

Property Values

Your home isn't guaranteed to hold its current market value. Instead, its value might rise or fall as you pay off your mortgage loan. If your home's value falls, your property tax bill might -- or might not, depending on other factors -- shrink. But the amount you pay in homeowners insurance each year won't. That's because your homeowners insurance premiums are not based on your home's resale value.

Homeowners Insurance

Homeowners insurance provides you financial protection should a natural disaster damage or destroy your home. It also gives you a payout should a burglar break into your home and steal your valuables. Because of this, your homeowners insurance is based on the cost of rebuilding your property and the value of your possessions. These values do not fall even if the value of your home does.

Rebuilding

If you bought your home for $200,000 five years ago, but it is now worth $180,000, this $20,000 drop in value doesn't mean it would cost any less to hire construction crews and purchase the supplies you'd need to rebuild your home. Because of this, your home insurance premiums won't drop just because buyers would now pay less for your residence.

Dropping Insurance Costs

You can, though, lower your insurance cost in other ways. You can sign up for a higher deductible, though this could cost you money if your home is damaged. The deductible is the amount of money that you must first pay before your insurance company kicks in with its coverage. If your deductible is $2,000 and your home is destroyed by a wind storm, you must first pay that $2,000 before your insurance company will cover the rest of your home's repair or rebuilding costs. You can also lower insurance costs by boosting the safety of your home, mainly by installing fire alarms and adding a home-security system. These alarms can protect your home from danger, making it less likely that your insurance company will have to pay for repairing or rebuilding it. Because of this, your insurance company might be willing to lower your premium. The addition of carbon-monoxide detectors and sprinkler systems can also lower the cost of your homeowners insurance. In hurricane-prone areas, installing storm shutters could help reduce your premium.

About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.

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