Does your homeowners insurance policy cover the full value to replace your home or just what you think its worth?

Your home’s value may have dropped in recent years. But that doesn’t mean the cost to replace it has followed suit.

When you initially buy homeowners insurance, the insurer typically calculates the rebuilding cost of your home by taking into account factors such as the number of bedrooms and bathrooms, construction type and square footage of the home, says Wayne Salley, a Pittstown, N.J.-based risk-management consultant who helps individuals figure out how much insurance they need.

Some companies then automatically adjust your coverage as needed to keep it in line with a number of factors, including current rebuilding costs—which have been rising in recent years and include materials and labor—says Jeanne M. Salvatore, spokeswoman for the Insurance Information Institute, a nonprofit industry group.

But in other instances, you may need to contact the insurer about boosting your coverage. It’s a good idea to evaluate your coverage when your annual renewal notice arrives, says Ms. Salvatore.

Even if your insurer automatically adjusts your coverage, it isn’t taking into account any renovations or upgrades you have made that will be more expensive to replace, she says. So let the insurer know about changes.

If you’re especially worried about being underinsured in a disaster, you may want to consider an extended replacement cost policy, says Mr. Salley, which will cover replacement costs that exceed the policy maximum, up to a set percentage above the policy amount.

“Our blogs are for general education and information only and may not represent your unique needs. Coverages will vary. Please contact your insurance agent to verify your specific policy terms and conditions.”

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