Trinidad Navarro is Delaware’s insurance commissioner.
The Delaware Department of Insurance and its Consumer Services Division are working to make consumers aware that property reassessments do not determine homeowners insurance premiums. Recently, Delaware homeowners have expressed concern that the statewide property reassessment will cause their homeowners insurance premiums to rise. This advisory explains what insurers use to calculate premiums and, just as importantly, what they do not use.
Defining replacement cost and actual cash value
You have the option to choose to insure your home and belongings for either replacement cost value or actual cash value. Replacement cost value is the amount it would take to replace or rebuild your home or repair damages with materials of a similar kind and quality. Actual cash value is a form of insurance that pays damages equal to the replacement value of damaged property, minus depreciation.
Reassessment does not determine your insurance premium
The department and its Consumer Services team surveyed insurance carriers and found that no carrier is increasing or adjusting rates due solely to the recent property assessments. The property assessment has updated the value of your home from a tax perspective, but your insurer has long valued your property accurately, based on your insurance needs.
Property assessments affect property taxes, not insurance rates. Insurance companies do not use county tax assessments to set premiums. Premiums are calculated based on the replacement cost of your home, not its market value. Even if your property value has increased based on the property assessment, the change alone does not raise your insurance cost.
Each home has its own risk profile, and insurers price policies accordingly. Because your home insurance policy should cover the replacement cost value or the actual cash value, when the cost to replace the home goes up, the amount of coverage will, as well. This means that, if your home gets damaged in a fire or natural disaster, you should be fully covered for the new amount of the home, helping you get repairs or a new house.
I encourage consumers to review their homeowners policies annually to ensure that coverage matches needs. There are several actions Delawareans can take to potentially help lower premiums. First, ask your insurer how your replacement cost value is calculated; this determines how much it would cost to rebuild your home. Make sure to update safety features regularly, such as roofing, wiring and smoke detectors, to reduce risk and potentially lower premiums. Lastly, shop around if your premium changes for reasons unrelated to the reassessment. "The Instant Insurance Guide: Home," found on the DOI site, covers basics on property insurance and is free to download.
Tips that can lead to savings
Even in today’s economy, it’s possible to lower your homeowners insurance premium without losing coverage. Here are some tips that can lead to savings:
Reader reactions, pro or con, are welcomed at civiltalk@iniusa.org.
