Having adequate home insurance is crucial to protect your most valuable asset – your home. While standard home insurance covers damage from common risks like fire, theft, and natural disasters, it may not fully cover a loss in property value from other causes. This is where preservation of property coverage comes in.
Preservation of property insurance provides additional protection to maintain your home’s market value even after non-covered losses. Whether due to economic factors, nearby foreclosures, or slow real estate markets, your home’s value can diminish without direct physical damage. This supplemental coverage helps fill those gaps not addressed by your homeowners’ policy.
In this comprehensive guide, we will explain everything you need to know about preservation of property coverage. You’ll learn what it covers, how it works, who needs it, and what impacts your rates. With a clearer understanding of this additional safeguard, you can decide if it’s worthwhile for your unique situation.
What is Preservation of Property Coverage?
Preservation of property, also called market value coverage, is an optional endorsement for homeowners insurance. It provides reimbursement if your home decreases in market value after a loss that is not covered under your base policy.
For example, let’s say a tornado strikes your neighborhood but luckily spares your house. However, several nearby homes are destroyed. This causes property values in the area to decline. Without market value coverage, your homeowners’ insurance would not compensate you for this loss in value. The preservation of property endorsement would pay out a claim for the reduction in your home’s appraised value due to external factors like this.
In essence, this coverage protects your most substantial investment – the market value of your real estate. It ensures you can recoup decreases not caused by a covered loss but still impact your equity and resale value.
How Does Preservation of Property Coverage Work?
Preservation of property coverage works by comparing your home’s fair market value before and after an event that diminishes property values in your area. Here are some key details on how this supplemental insurance functions:
- It requires an appraisal to establish your home’s value before and after the loss. Most policies dictate using a certified professional appraiser.
- The insurance company will pay the difference between the two appraisals if the fair market value decreases. This compensation is limited to your coverage limit, usually a percentage of your home’s value.
- To make a claim, the loss in value must result from an external event, not due to normal market fluctuations. Examples include nearby foreclosures, economic decline, or non-covered disasters.
- There is no deductible for preservation of property claims since you did not incur physical damages.
- You must maintain your property appropriately for coverage to apply. Severe deferred maintenance or neglect could make you ineligible.
- Most insurers pay the claim amount directly to you, the policyholder. You can use the funds as you see fit.
- There are limits on when coverage applies, such as within 180 days of the loss event. Timeframes vary among insurance companies.
Proper documentation is critical when filing a preservation of property claim. Be sure to take ample photos and videos throughout the process. It also helps tremendously to get written appraisals of your home’s value before disaster strikes. This makes submitting and validating your claim much smoother.
Who Needs Preservation of Property Coverage?
Preservation of property coverage provides an extra layer of protection for homeowners vulnerable to market value losses. Here are some examples of who would benefit most from this endorsement:
- Homeowners in competitive housing markets: Hot real estate areas with bidding wars can see values drop drastically and quickly when buyer demand lessens. Market value coverage protects against this volatility.
- Homes in storm-prone regions: Areas susceptible to hurricanes, floods, tornadoes, and other disasters are at higher risk for nearby property damages that diminish values. This coverage safeguards equity for surviving homes.
- Rural and vacation properties: Homes in remote areas or seasonal communities tend to appreciate more slowly and have lower resale values. Owners here are more prone to market value declines.
- Custom, luxury, or historic homes: Unique properties that are difficult to appraise can better withstand value drops with this added coverage.
- Condominiums and townhomes: Shared walls and dense neighborhoods increase vulnerability to disasters damaging surrounding units and the overall community marketability.
- New construction homes: Brand new real estate in impacted regions may be less desirable after events reducing property values nearby. This endorsement protects pre-loss worth.
- Declining or stagnant housing markets: Areas with high foreclosure rates or gradually diminishing home values benefit from market value coverage during downturns.
Always weigh the cost of extra coverage against your risk factors. But for many homeowners, preservation of property insurance delivers welcome peace of mind.
What Does Preservation of Property Insurance Cover?
Preservation of property endorsements covers a decrease in your home’s fair market value stemming from an external event. Here are some examples of covered losses:
Nearby foreclosures – Mass foreclosures in your neighborhood can reduce buyer demand and values for remaining homes. This endorsement compensates for this diminished value.
Natural disasters – Hurricanes, fires, floods, and other catastrophes can detrimentally impact your home’s worth, even without direct damage. The additional coverage pays for this resultant value decrease.
Economic decline – Poor economic conditions like high unemployment and recession can lower real estate prices community-wide. Market value coverage helps recoup the value lost for these reasons.
Contamination – Pollution, hazardous material spills, or other environmental contaminations could stigmatize properties and values in your area. This coverage pays for associated home value reductions.
Zoning changes – If revised zoning or ordinances restrict rebuilding after area disasters, remaining homes may lose value. The endorsement reimburses for value losses from these zoning impacts.
Ineligible causes – Damage from causes excluded by your homeowner’s policy, like earth movements, are covered for resulting market value losses by this endorsement.
The coverage generally applies to value decreases of 10% or more. Some insurers offer tiers of coverage such as 50%, 75%, or 100% of the established value loss. Be sure to select adequate limits when purchasing a preservation of property endorsement.
What is Excluded by Preservation of Property Coverage?
While preservation of property coverage is broad, some exclusions apply. Here are common losses not covered by this endorsement:
- Normal market fluctuations – Gradual home value changes due to typical housing market activity are not covered. The loss must connect clearly to an external event.
- Pre-existing conditions – Any damages, defects, or other conditions present before you purchase the endorsement are excluded.
- Improper maintenance – Severe deferred maintenance or failure to care for your home may negate coverage. Most insurers require properties to be properly maintained and up to code.
- Modifications reducing value – Remodeling projects or other physical property changes that decrease your home’s worth are not covered. The cause must originate offsite.
- War, nuclear hazards, and intentional damage – Similar to standard homeowners policies, losses from these causes are excluded.
- Government seizure – Loss of property value due to lawful seizure, confiscation, or occupation by government forces is not covered.
- Power grid failure – Losses resulting solely from power grid failures are typically excluded. There must be an underlying qualifying event.
Be sure to read your preservation of property endorsement details closely. Understand all applicable exclusions and restrictions to make the right choices if filing a claim.
How Much Does Preservation of Property Coverage Cost?
The cost for preservation of property coverage varies based on your location’s risk factors, home value, and the policy limits selected. On average, expect to pay about 0.25% to 0.5% of your dwelling coverage amount. For a $500,000 home, the annual premium would be in the range of $1,250 to $2,500.
Factors that can increase your preservation of property insurance rates include:
- High home value
- Location in a competitive or disaster-prone real estate market
- Expensive custom home difficult to value
- Recent volatility or declines in regional housing values
- Higher coverage limits or lower deductibles
Ask your insurance agent how this endorsement impacts your premiums. Also, compare rates from multiple providers. Shopping around helps find the best value given your unique risk profile and coverage needs.
Is Preservation of Property Coverage Worth the Cost?
Whether preservation of property coverage makes sense depends on your personal situation:
The pros of adding coverage:
- Protects your most significant asset – your home’s market value
- Provides peace of mind by safeguarding home equity
- Can prevent financial hardship from value loss exceeding your mortgage
- Requires no deductible, so you quickly recoup covered losses
- Covers risks not addressed by your standard policy
The cons of adding coverage:
- Adds an extra annual premium expense
- You may never need to file a claim
- Appraisal discrepancies could lead to claim disputes
- Strict claim documentation and home maintenance required
Carefully weigh the benefits against the added costs. For homeowners in higher-risk regions or situations, this invaluable coverage is well worth the premiums. But for some, the standard homeowner’s policy coupled with an emergency fund may suffice. Consider your individual circumstances and risk tolerance to decide.
Shopping for the Best Preservation of Property Coverage
If you determine this endorsement suits your needs, follow these tips to find the optimal preservation of property coverage:
- Research reputable insurers – Look for financially stable companies with excellent customer service records. Avoid obscure insurers with minimal financial backing.
- Compare rates – Premiums can vary dramatically among top providers. Shop around for the most competitive pricing.
- Review policy details – Look for appropriate coverage limits, reasonable qualification terms, and APPEALING EXCLUSIONS. Make sure you understand all provisions.
- Ask about discounts – Inquire if discounts like multi-policy, home renovation, and new home discounts apply to this endorsement’s premiums.
- Consider increased dwelling coverage – Some insurers base market value coverage on your dwelling limit. Boosting this amount raises your preservation coverage cap.
- Discuss appraisal requirements – Understand the appraisal process required in the event of a claim so you complete proper documentation.
- Get quotes annually – Recheck rates and coverage when your policy renews to ensure you still have the best deal.
With a little legwork, you can gain strong financial protection and excellent value. An ounce of prevention truly pays off where safeguarding your home’s market value is concerned.
Conclusion
Losing property value can have devastating financial consequences for homeowners. While standard insurance covers direct physical damage from many causes, it does not compensate for declines in market value attributed to external factors. Preservation of property coverage fills this significant gap by reimbursing losses when your home’s worth decreases due to nearby foreclosures, disasters, economic declines, and other covered causes.
Understanding exactly what this supplemental endorsement covers and excludes is key to making an informed decision about purchasing it. Comparing premium costs to your potential risk helps determine if the added protection is worthwhile. For homeowners in higher vulnerability situations, preservation of property insurance delivers invaluable security.
Discuss your specific coverage needs and risk profile with a trusted insurance agent. Ask plenty of questions to decide if securing this financial safety net makes sense for you. While hoping for the best, planning for the worst is always wise when protecting your most valuable asset.
FAQs
Q: Is this the same as guaranteed replacement cost coverage?
A: No, they differ. Guaranteed replacement cost pays to completely rebuild your home after a covered total loss. Preservation of property covers loss of value from external causes not addressed by your homeowner’s policy.
Q: Does my mortgage lender require this endorsement?
A: Usually not, but check with your lender. Most only require dwelling and personal property coverage to meet the loan amount. Preservation coverage is optional.
Q: What documentation do I need for a successful claim?
A: You’ll need proof of your home’s pre-loss value, so get a professional appraisal periodically. After the value loss, you must substantiate the decrease with another appraisal by a certified appraiser. Photos, videos, and written records also help.
Q: Is there a waiting period before coverage takes effect?
A: Yes, most insurers impose a 30 to 90-day waiting period from endorsement purchase before claims can be filed. This deters buying right before a known impending event. Make sure to buy coverage far in advance.
Q: Can I get preservation of property coverage for a condo unit I own?
Absolutely. This coverage applies to single-family homes, condominiums, co-ops, and townhomes. Consult your HOA about any special provisions needed for condos. The master policy may already include some coverage.
Q: What if I dispute my insurance company’s appraisal after a loss?
A: You can request a second independent appraisal paid for by the insurer. If disputes continue, many policies directly use the average between the two estimates. Binding arbitration is also an option to resolve differences with appraisal amounts.
