If Your Home Value Decreases Should You Decrease Your Insurance Coverage?

It is no secret that home values have been dropping all over the country. So with all the money saving resolutions for 2010, some have thought about lowering their homeowners insurance coverage since their home is worth less. It seems like it makes sense but lowering your homeowners insurance because your home's market value has decreased is a bad idea.

Homeowners insurance coverage is based on how much it would cost to rebuild your home, not its market value. So, even if your home value has significantly decreased, it will still probably cost the same amount to rebuild as it did a few years ago when your home value was higher. If anything, it may cost even more to rebuild if the price of building materials has inflated in an economy such as our current one.