Homeowner's Insurance - How Much?
June 29, 2009
One of the interesting ramifications of the present real estate market is the issue of home owner's insurance. If there is to be a loan on the property, a lender will not make a loan without the borrower putting an insurance policy in place. The amount of insurance that a lender usually requires is the amount of the lenders loan. The lender becomes an "also insured" on the policy.
While this amount will satisfy the requirement for the lender, it is generally not an amount that will provide the homeowner with adequate coverage should a claim need to be made. So, what is the best way to determine the amount of coverage necessary to protect a homeowner in the case of serious damage to the property?
I recently read an article in the LA Times newspaper concerning folks wishing to reduce the coverage they were carrying because that coverage was greater than the current market value of the property. The writer suggested that this was not a very good idea. While reducing the amount of the coverage could reduce your annual premium, it could easily be penny-wise and pound foolish.
The value that should play a role in determining how much insurance is necessary is the cost to rebuild or to replace any damage. Reconstruction costs include demolition as well as materials for rebuilding. The costs of materials and labor have not declined in the same way that real estate property values have declined. It is important to ask your insurance agent for the going estimate for replacement of the residence.
Hopefully you will never need to use this insurance, but having adequate coverage is critical.
One of the interesting ramifications of the present real estate market is the issue of home owner's insurance. If there is to be a loan on the property, a lender will not make a loan without the borrower putting an insurance policy in place. The amount of insurance that a lender usually requires is the amount of the lenders loan. The lender becomes an "also insured" on the policy.
While this amount will satisfy the requirement for the lender, it is generally not an amount that will provide the homeowner with adequate coverage should a claim need to be made. So, what is the best way to determine the amount of coverage necessary to protect a homeowner in the case of serious damage to the property?
I recently read an article in the LA Times newspaper concerning folks wishing to reduce the coverage they were carrying because that coverage was greater than the current market value of the property. The writer suggested that this was not a very good idea. While reducing the amount of the coverage could reduce your annual premium, it could easily be penny-wise and pound foolish.
The value that should play a role in determining how much insurance is necessary is the cost to rebuild or to replace any damage. Reconstruction costs include demolition as well as materials for rebuilding. The costs of materials and labor have not declined in the same way that real estate property values have declined. It is important to ask your insurance agent for the going estimate for replacement of the residence.
Hopefully you will never need to use this insurance, but having adequate coverage is critical.
posted by shirley harry at 7:53 AM
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