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Home Insurance-to-Value Ratio Explained
The insurance to value ratio defines the proportion of insurance to the value of your property. If you do not have enough insurance, then your insurance to value ratio is too low, and if you have too much coverage, the ratio is too high. Having too high a ratio is a sign that you are paying more for your insurance than you need to pay.If your insurance to value ratio is too low, you could be faced with unexpected high costs out of pocket when you file a claim. The insurance policy will pay out the amount named as the value of the policy, and when the ratio is too it means that you are not actually covered for the full amount that you should be.The insurance to cost ratio needs to be evaluated every time your make changes to the home or purchase a new piece of equipment. The insurance company has no way of keeping your coverage complete without you letting them know when more or less coverage is required. For instance, if you add a room on your home, the insurance policy needs to be updated to reflect the new value. If it is not updated and your house burns down, you may lose the entire value of the addition with no way to recoup the loss.Having too much insurance will not hurt you when you file a claim, but it is a sign that you spending more than necessary for the same amount of coverage. You cannot get the extra money you are paying into the policy, so keeping the ratio of insurance to cost in balance is your way to make sure that you are not being over charged.