Why You Should Update Your Homeowners Coverage Limits Every 3 Years

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It’s no secret that money expert Clark Howard recommends only using your homeowners insurance for catastrophic events. But that doesn’t mean you should treat your policy as “get it and forget it” protection.

To make sure you have enough coverage if something goes wrong, Clark suggests reviewing your coverage limits every three years. You can read more about how much homeowners insurance you need here, but in this article, I’ll go over reasons why your coverage needs can change over time due to:

Changes in Housing Costs

The coverage limits of your homeowners insurance policy determine how much you’ll be compensated for damages or loss to your property after a covered event. If you haven’t reviewed your homeowners insurance policy for a while, there’s a chance you may be underinsured.

The National Association of Home Builders (NAHB) reports that the cost of building materials is up 33% since the pandemic. At the same time, the American Property Casualty Insurance Association (APCIA) found, “only 30 percent of insured homeowners have purchased more insurance” to make up for this change.

The APCIA estimates nearly two-thirds of homeowners may not have enough insurance to rebuild their property in the event of an emergency.

“Where five [years] used to be adequate, there’s been such movement in home prices — and also in changes of what homeowners policies cover — that a three year cycle is the old five year.”

Depending on your insurer, you may have the option to add an inflation guard endorsement to your policy. This add-on allows your insurer to automatically increase your coverage limits during your policy’s renewal period to account for inflation. Companies use data to predict how much more coverage you’ll need, then they adjust your policy and premiums accordingly. Typically, if your coverage limits increase, your premiums will also increase.

If your insurer offers inflation guard, they’ll specify what coverages (such as dwelling, personal property, etc.) the endorsement protects. So even with this add-on, it’s a good idea to regularly review your coverage limits for yourself.

Changes to Your Property

Reviewing your homeowners insurance every three years helps ensure your coverage keeps up with rising construction costs and property values. But if you’ve made upgrades or changes to your home, you may want to review your coverage sooner.

To prevent being underinsured, you should consider updating your coverage any time you make the following types of changes:

Renovating or Updating Your Home

When you renovate or make improvements to your home, the cost to rebuild, replace or repair your dwelling typically increases. If you’re making updates, it’s important to notify your insurer sooner than later.


One reason is because some insurance policies have timeframes for notification in order to maximize policy benefits. Erie Insurance is a great example of this. You can read more about Erie in my article on the best homeowners insurance companies and ones to avoid. But Erie’s guaranteed replacement cost coverage “requires home improvements over $5,000 to be reported within 90 days.”

Another reason is because the worst time to find out you don’t have enough coverage is after the unthinkable happens. Homeowners insurance is for catastrophic events, which can be very costly. Consumer Reports says that the majority of “homes are underinsured by an average of 20 percent” according to data from Core Logic. Consider a home that costs $250,000 to rebuild. Being underinsured by 20% on that property equals falling short by $50,000 in needed coverage during a crisis.

As a bonus, you might save money on your premiums by letting your insurer know about updates to your home. Maybe you haven’t spent thousands on kitchen renovations, but you spent a few hundred dollars on a fire alarm system. Adding safety or security features doesn’t always impact the cost to rebuild your home, but it can decrease the chances that you’ll have to. Many insurance companies offer discounts for such features.

You can read more about ways to save money on your homeowners insurance here.

Purchasing Something Valuable

Standard homeowners insurance policies include protection for personal property. So, be sure your personal property coverage limit is enough to repair or replace your belongings after a covered event.

Whenever you buy or receive something that’s worth a lot of money, consider reviewing your personal property coverage limits. Check if you have actual cash value or replacement cost coverage for your belongings. Then — if needed — calculate how much extra coverage to get.

Taking On New Risks

Liability coverage protects you from claims of injury or damages to other people and their property. If you make changes to your home or lifestyle, you should review your homeowners insurance policy. Some changes increase your liability risk in the insurance world.

Buying or adopting a new dog is an example. According to American Veterinary Medical Association (AVMA), “4.5 million people are bitten by dogs each year.” The Insurance Information Institute (III) reports that “liability claims related to dog bites and other dog-related injuries cost homeowners insurers $882 million in in 2021.”

Depending on your insurer, you may be required to make changes to your homeowners insurance policy once you add a dog to your household. If you’re unsure about your insurer’s requirements and don’t have a dog yet, it’s best to ask questions first. Some insurers might cancel your coverage if you get a breed that’s considered aggressive.

Another example is starting a business. Home-based businesses come with risks that can leave you underinsured if you don’t update your policy accordingly. You can read more about why you might need to update your homeowners insurance for your home-based business here.


Final Thoughts

Homeowners insurance is meant to protect your property in the event of unexpected damages or loss. But it’s estimated that two out of three homeowners are underinsured.

To make sure you’re not one of them, consider updating your homeowners insurance policy whenever you make changes to your home or belongings. Even if you’re not making changes, review your coverage at least once every three years. This will help ensure your coverage is keeping up with changing construction costs.

Contractors in your area can provide construction cost estimates to help you calculate the cost of rebuilding your home. There are also apps and websites that provide rough estimates based on your zip code. You want to have enough coverage to rebuild your home. Then, take stock of your belongings to determine how much you’d need to replace or repair your personal property.

After you calculate the costs of rebuilding and replacing your property, adjust your policy’s coverage limits as needed. While increasing your coverage will increase your premiums, being underinsured is a much more costly risk in the long-run.

A few years back, Clark’s insurer would not raise the coverage limits on his primary residence. He had to trigger a clause in his contract and get a third-party appraiser to look at his home. The appraiser agreed that his home had appreciated in value beyond his coverage. The insurer accepted the appraisal and complied by raising his coverage. Even though his premiums also increased, Clark was happy to pay.

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