Americans have been pouring money into their homes in recent years, adding everything from marble bathrooms to fancy backyard barbecues: Last year alone, spending on improvements like these hit an estimated $155 billion, up 27% from two years earlier. At the same time, the global boom in commodities prices — lumber, copper piping and other necessities — as well as rising labor costs has pushed up replacement costs by 7% a year since 2001.

[tag]Home insurance[/tag] exists to help owners repair or rebuild a home, and replace furniture, clothing and other personal property, in the wake of a fire, burglary or other calamity covered by the policy. Some risks, such as flooding or acts of war, are routinely excluded. (Policies also include [tag]liability coverage[/tag] to protect against lawsuits resulting from incidents around a home, such as your dog biting the cable guy). For insurance purposes, the value of a house is based mostly on the rebuilding costs in a particular area, not on its market value. The policy isn’t meant to include the value of the land underneath, which is why some homes, especially in desirable neighborhoods where land is pricey, need less insurance than the amount they would fetch in a resale.

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