Home prices have changed dramatically over the past several years. Some markets have seen increases of 50 percent since 2020, although overall growth has slowed. As of March 2025, the S&P CoreLogic Case‑Shiller National Index reported a 3.4% annual gain, down from 4.0% in February. Zillow’s latest data puts the U.S. median home value at $367,969, a rise of 0.8% over the past year.
When property values increase, home rebuild costs often rise as well. This creates a complex relationship between market value and insurance needs. These trends can directly impact your home and property insurance rates and coverage requirements in ways that many homeowners may not understand.
This guide explains what rising property values mean for your home and property insurance rates, and how to stay protected as the market changes.
What's Causing Property Values to Rise?
Understanding the relationship between property value and insurance helps homeowners navigate changing market conditions.
Several interconnected factors continue to drive property value increases nationwide. High housing demand, low inventory levels, and ongoing inflation remain key drivers of home price growth. In many areas, property values continue to rise faster than both wages and construction capacity. This creates affordability problems for buyers and coverage concerns for existing homeowners.
Different regions show interesting patterns in 2025. The Northeast and Midwest markets are showing stronger price stability. You may be surprised to learn that the Sun Belt and Western markets are beginning to cool down. This shift reflects changing migration patterns, the impact of interest rates, and varying local economic conditions across regions.
When property values rise, it often reflects increased construction costs, premium materials, and labor expenses. These factors directly impact how much it would cost to rebuild your home from the ground up, which in turn can increase your insurance premiums.
Is Homeowners Insurance Based on Property Value?
Many people think homeowners insurance premiums are directly tied to their home's market value or property tax assessment. This isn't true. Insurance policies are designed to cover the cost to rebuild your home, not its resale value or land value. Your property's market value includes factors like location appeal, school districts, and neighborhood features that don't affect reconstruction costs.
However, rising property values often do relate to higher rebuild estimates. This creates an indirect relationship between market trends and insurance needs. When home prices increase due to rising material costs, labor shortages, or construction inflation, these same factors typically drive up the cost of rebuilding existing homes. Recent industry data shows rebuild costs are currently rising faster than home prices in many markets.
Your property insurance should accurately reflect current construction and material costs, not old estimates. This property value insurance principle applies regardless of market fluctuations.
How Property Value Trends Affect Insurance Rates
As construction materials, labor, and building code requirements get more expensive, insurance companies must adjust coverage amounts and premiums to maintain adequate protection.
Material costs remain well above pre-pandemic levels. Lumber has returned to more normal pricing, but it is still 20% higher than its 2019 levels. Other construction materials continue to show high costs, with year-over-year increases of 1.6% and quarterly growth of 1.1% according to CoreLogic. These ongoing increases directly impact rebuild costs and drive up home property insurance rates nationwide.
Typical annual premiums averaged around $3,303 in 2024, up $648 since 2021. This means insurance premiums are rising faster than property values. Harvard's Joint Center for Housing Studies reports that insurance premiums have increased by about 74% over the long term, while home prices have risen by around 40%.
Risk of Underinsurance
When insurance coverage fails to keep pace with rising rebuild costs, homeowners face a serious risk of underinsurance. National data shows that over two-thirds of U.S. homes are currently underinsured. Many homeowners are unaware of their coverage gaps until they face a claim.
The consequences of underinsurance showed clearly after Colorado's Marshall Fire. There, 74% of policyholders were underinsured, with 36% severely underinsured (having less than 75% of actual rebuild cost coverage). This meant homeowners had to cover significant reconstruction expenses out of their own pockets, often tens of thousands of dollars beyond their insurance settlements.
Severe underinsurance typically means coverage falls short by at least 25% of the true rebuild cost. This forces homeowners to make up substantial differences during the claims process.
What to Know About High-Value Property Insurance
Homes with values above certain thresholds often require specialized high-value property insurance to ensure adequate protection. High-value insurance typically offers several key enhancements over standard coverage.
These policies often provide higher dwelling coverage limits and extended replacement cost protection that covers rebuilding costs even if they exceed policy limits. They also include enhanced personal property coverage for valuable items, such as art, jewelry, and collectibles. Many high-value policies also include additional living expense coverage with higher limits and longer time periods.
For Wawanesa members whose property values have increased significantly, we suggest contacting us. One of our helpful agents can help you determine if enhanced coverage options are suitable for your situation.
How to Manage Your Insurance as Property Values Rise
Many Wawanesa members find that their coverage needs have changed significantly as their property values have grown. An annual policy review is the easiest way to stay on top of your coverage needs. We recommend keeping detailed records of home improvements, renovations, and valuable purchases to ensure accurate coverage during claims.
Despite rising costs, there are still ways to save. Bundling your home and property insurance with auto insurance can offer significant discounts. Installing home safety features, such as security systems, storm shutters, or impact-resistant roofing, can also reduce premium costs while enhancing your home's protection. Some improvements may qualify for specific discounts while also potentially reducing future claims risk.
Protecting Your Home Property Value with the Right Coverage
As construction costs continue rising faster than home price appreciation in many markets, the risk of coverage gaps increases for homeowners who don't regularly review and update their policies. Don't wait until you file a claim to discover that your coverage falls short of actual rebuild costs.
Wawanesa offers dependable coverage options for both standard and high-value property insurance needs. Whether you need basic dwelling coverage adjustments or enhanced protection for high-value properties, we offer personalized service tailored to your specific situation.
Working with knowledgeable insurance professionals is increasingly valuable as property value trends create more complex coverage considerations. Wawanesa members benefit from expert guidance on coverage amounts, endorsement options, and cost management strategies tailored to their local market conditions and property characteristics.
FAQs
How are home insurance rates determined?
Property insurance for homes can have fluctuating rates. These rates are calculated based on multiple factors, including your home's rebuild cost, location, age, construction type, claims history, and coverage amounts. The primary factor is the estimated cost to completely rebuild your home using current construction costs, not its market value. Insurance companies may also consider regional risk factors, such as weather patterns, crime rates, and local building costs.
Does home value always affect insurance premiums?
Home value doesn't directly determine insurance premiums, but rising property values often reflect higher rebuild costs, which do affect rates. When property values rise due to construction inflation or material costs, these same factors typically increase rebuild estimates. However, if property values rise mainly due to location appeal or market speculation without corresponding increases in construction costs, insurance premiums may not change significantly. The key relationship is between rebuild costs and premiums, not market value and premiums.
Are home insurance and property taxes tied together?
Home insurance and property taxes are separate expenses that aren't directly tied together, though both may be included in your monthly mortgage payment through an escrow account. Property taxes are based on assessed property values and local tax rates, while insurance premiums are based on rebuild costs and risk factors. However, both can increase when property values rise—property taxes because assessments increase, and insurance because higher property values often reflect increased construction costs.
What's the difference between dwelling coverage and personal property coverage?
Dwelling coverage pays to rebuild or repair your home's structure, including built-in appliances and fixtures. This coverage should equal your home's rebuild cost, not its market value. Personal property coverage protects your belongings inside the home, such as furniture, clothing, electronics, and other movable items.
If my property value increases, do I automatically get more coverage?
No, your insurance coverage amounts don't automatically increase when your property value rises. You need to actively review and update your policy to ensure coverage keeps up with current rebuild costs. Contact a Wawanesa agent today to discuss your high-value property insurance needs.
