Community Answers

1. 

   1-3-11

   Margarita D says:

   The amount your home is insured for has nothing to do with the mortgage amount. Home insurance is based on how much it would cost to rebuild that home from the ground up in the event of a total loss. When you purchased your home, you bought the structure and the land. However, the insurance company only bases the amount of insurance on the structure itself. You should not have to pay insurance on the cost of the lot since this will not burn. The other scenario is that the home purchase price is based on the market which as you can now see can fluctuate widely — for example you can purchase a foreclosure in some areas for about 1/4 of what it would cost to rebuild the structure just because of what is going on in the marketplace. By the same token — you purchased a home for $ 242,000 even though the cost to rebuild determined by your agent using a replacement cost analysis is $ 169,000. It would not be to your benefit to insure yourself for $ 242,000 as the insurance company will not give you one dime more than what it would cost to rebuild or $ 169,000.

   If there is a total loss of the structure, your bank would work with the insurance company to rebuild so no you would not need to come up with the rest of the mortgage balance unless you decided not to rebuild and decided to walk away. At that point you would have to sell the lot and hope that what the insurance pays (which will be based on the depreciated value) and the proceeds from the sale would be enough to pay off the mortgage. Look at it this way, the agent gains nothing by selling you less insurance since he or she makes less commission so I do not think the agent is being dishonest in the amount of insurance being recommended.

   I hope this information helps. Good Luck

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2. 

   1-3-11

   mbrcatz says:

   Most likely, your mortgage paperwork says you must carry enough coverage to be 100% of the replacement value of the house, or 100% of the loan value, whichever is LESS. Keep in mind, part of that mortgage value, is the LAND. The land can’t get stolen, can’t burn down, etc. It will still be there, even if the house is a total loss.

   The insurance company will NEVER pay more than the value of the house. If you have a $ 250,000 house, and insure it for $ 5,000,000 and it burns down, they pay . . .. $ 250,000.

   You can always ask your agent to do another inspection, and update the cost estimator he used. You can also hire a private inspection company to do a replacement cost calculation on your house. And you can get a quote from another agent, send them out to your house, to let THEM calculate the cost to rebuild your home, thus the value of your policy.

   If your house burns to the ground, and you have a total loss, you can either rebuild, or sell the land, presumably for $ 73,000 plus whatever you put down on your house.

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3. 

   1-3-11

   StephenWeinstein says:

   Even if there is a total loss to the building, the land might still be worth something. If the land is not worth $ 73,000, then yes, you would have to pay the rest.

   If your agent really told you to get an amount of insurance that is less than the mortgage amount (minus the value of the land) and is less than the value of the house, then get a different agent.

   If the house is only worth $ 169,000, then the agent is correct. Even if you get $ 242,000 of coverage, the insurance will not cover more than the value of the house. You would still have to pay $ 73,000 (minus the value of the land).

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