If you do not insure your home for at least 80% of its replacement value, your claim will generally not be settled on a replacement cost basis. Therefore, it is important to review your homeowner’s policy periodically to determine whether you are carrying enough insurance to be fully covered.
The addition of a room, or other substantial home improvements, will also increase the replacement cost of your home, and you should adjust your coverage accordingly. Further, because of inflation, the replacement cost of your home generally increases each year.
To anticipate inflationary increases, most insurance companies offer policies that automatically increase the amount of insurance periodically. Regardless, you should review your policy each year to make sure your coverage is keeping pace with inflation.