(over)insuring your house. Has anyone ever claimed a total loss?

Archived From: Finance
  • Text Only
Voting History
rated:
Car insurance is pretty straightforward, I think.  You decide on a certain benefit and shop around to see who gives you the best rate (right?  Correct me if I'm wrong).

This is a little rant, and a little poll.

House insurance is a PITA.  I have a house I bought for 270k that was probably worth 300k (bad listing).  It's been a couple years, I figure I could sell it for around 320k today.

My home insurance spiked so I tried to find out why - turns out my house is insured for 490k.  Well that seems like too much, I think.  So I rate shop, other guy says I need to be insured for 520k.

wtf?

Apparently I can't choose a lower coverage amount.  In my area, my 2500K sq ft house could be rebuilt from the ground up for about $150/sq ft if I included a bunch of premium finishes and a top-tier builder.  So why can't I choose $375k as my dwelling value?  If I did my home insurance premiums would be a lot lower.

I'm not looking to use my home insurance as some kind of lottery ticket.  I could absorb a slight kick to my net worth if for some reason my house burned to the ground and it required $420k to rebuild.  I already own the plot of land it's on, so I'm not insuring THAT am I?  Looking through the policy it looks like there's another 10% of the dwelling devoted to debris cleanup, so that's not it.

Insurance should help keep you from being totally devastated in a worst-case scenario, right?  So why are insurance agents telling me I have no choice but to insure for astronomical amounts?  Why can't I "underinsure"?

Any insurance agents here that have seen clients through a worst-case scenario?  Or folks that experienced it?  What would happen if my house went up in flames - TOTAL LOSS?  Assuming no loss of life, just stuff.  If I switched to the new guy that says I have to choose 520k, would I get a check for $520k plus the $430k to cover my personal property on my declarations page?

Could I sell my plot of land to a developer for $50k, pocket my $950K and get some other house somewhere?  Insurance should make you whole, so why does it feel like I'm making stupid bets?

I wonder what other people do?  I imagine if it were ME I'd want to move to another house asap.  I have kids - I'm not sitting around in an apt for 8 months waiting for debris cleanup, permits, new house build, etc.  I'm buying a house two blocks over that I can move into in a few weeks!!

My home policy is expensive, like $1k/year for a standard $1k deductible home policy.  If I could get dwelling coverage down to a sane amount it would be $700 or less.  $300 per year after taxes is a lotta cashola!  

Why don't we do the same thing with cars?  Probably because cars get wrecked all the time and people might get pretty pissed when they get a $12K check for their $15k Altima after paying for years for a $80K Altima....

Looking for others experiences to guide how hard I work at finding more reasonable coverage.

Member Summary
Most Recent Posts
My neighbors house "burnt" down winter before last. It was during the super cold weather the midwest had, he had a pipe ... (more)

NonReturnable (May. 04, 2016 @ 9:05a) |

The irony is that no only do they whack you on the cost of rebuilding, but they then automatically assume your "contents... (more)

DavidScubadiver (Jul. 25, 2016 @ 11:26a) |

You need to talk with your insurance company about the personal property limits and getting riders for anything above th... (more)

gnopgnip (Jul. 25, 2016 @ 1:19p) |

Staff Summary
Thanks for visiting FatWallet.com. Join for free to remove this ad.

its not insured for what you could sell your house for. its insured for the replacement cost. they figured out how much lumber, drywall, shingles, and nails were used to make your house. they went to menards and then calculated what all that stuff cost. thats what they require you to insure it for, the cost of the wood.

I touched on the personal property thing - wondering about how that is handled in a total loss situation as well. I probably have around $400K worth of stuff. Will I get around $400K if it's all gone? Without a detailed video and pictures of everything I've accumulated in my life how would anyone know what I owned?

The worst would be paying for a TON of insurance year after year after year, and then when you actually use it you only get 2/3 of what you have ever paid in via premiums. I'd rather underinsure a little, betting AGAINST a total loss, and if the worst happens at least I get 100% of what I've been paying into in premiums... even if I have to pony up 10 or 20% out of pocket for an extreme black swan event.

OIiverQuackenbush said:   its not insured for what you could sell your house for. its insured for the replacement cost. they figured out how much lumber, drywall, shingles, and nails were used to make your house. they went to menards and then calculated what all that stuff cost. thats what they require you to insure it for, the cost of the wood.
  
I could duplicate my house, exactly the way it is, with one of the top builders in my area, with granite and hardwood and custom trim and all the goodies for $350k.  That includes the plot of land!

I know this because we were going to build our exact house, just before we stumbled on a house that was 95% of what we wanted, and actually a little bigger, and paid $270k for it.

So what's magical material are they using to come up with $520k??  

And more importantly, what if I don't want to build it back to exactly how it was? I'll buy some other house anyways, what do I care what is built atop the smoldering heap? Can I pocket the payout?

highstatuspol said:   And more importantly, what if I don't want to build it back to exactly how it was? I'll buy some other house anyways, what do I care what is built atop the smoldering heap? Can I pocket the payout?
  That money goes to the LENDER then they will pay out as its rebuilt right where it was - you cannot just buy another house with the money.   Also there is demo and cleanup cost associated with a full loss house as well.   I get your argument and If you own it outright I think you have more options.  Why don't you use this as an opportunity to reshop your auto, home, and umbrella policies comprehensively?   I did this when I was getting messed with from one of my insurers and saved 1k.  

highstatuspol said:   And more importantly, what if I don't want to build it back to exactly how it was? I'll buy some other house anyways, what do I care what is built atop the smoldering heap? Can I pocket the payout?
  
Mine is also forcibly insured for more than build cost or resale value.
The way my agent explained it, I could get a check for 'actual cash value' and walk away without rebuilding, sort of like selling the house.
If I want to get the insured value, I have to rebuild on the same lot, and spend that much rebuilding. They don't care if I replace my 3BR/1BA with 4br/3BA, they just care that I'm not pocketing the money.

DamnoIT said:   
highstatuspol said:   And more importantly, what if I don't want to build it back to exactly how it was? I'll buy some other house anyways, what do I care what is built atop the smoldering heap? Can I pocket the payout?
  That money goes to the LENDER then they will pay out as its rebuilt right where it was - you cannot just buy another house with the money.   Also there is demo and cleanup cost associated with a full loss house as well.   I get your argument and If you own it outright I think you have more options.  Why don't you use this as an opportunity to reshop your auto, home, and umbrella policies comprehensively?   I did this when I was getting messed with from one of my insurers and saved 1k.  

  
That's what I'm doing, and the auto & umbrella are coming out cheaper but the home is a crapshoot due to the outrageous dwelling coverage amounts.  There's already a "10% of dwelling for demo and cleanup" line item.

I have a $100k mtg.  What does my mtg holder care, as long as they get their $100k?  Which they could take from my sweet $1MM payout ... right?

taxmantoo said:   
highstatuspol said:   And more importantly, what if I don't want to build it back to exactly how it was? I'll buy some other house anyways, what do I care what is built atop the smoldering heap? Can I pocket the payout?
  
Mine is also forcibly insured for more than build cost or resale value.
The way my agent explained it, I could get a check for 'actual cash value' and walk away without rebuilding, sort of like selling the house.
If I want to get the insured value, I have to rebuild on the same lot, and spend that much rebuilding. They don't care if I replace my 3BR/1BA with 4br/3BA, they just care that I'm not pocketing the money.

  
Did you ever get that in writing?  I have a very hard time believing that your inflated over-insured dwelling coverage amount could be used to build a mcmansion... something tells me if your house burned down that agent would be all, "oh I'm afraid you must have misunderstood me Mr. Taxmantoo..."

I have to say I really hate insurance agents. They keep talking like they're doing you this huge favor.

"You're SO WELL INSURED!! Your assets are TOTALLY SAFE thanks to this tremendous amount of coverage!"

Meanwhile if your house burned down you would probably have to fight tooth and nail to get anywhere NEAR the numbers you're paying for today.

highstatuspol said:   I touched on the personal property thing - wondering about how that is handled in a total loss situation as well. I probably have around $400K worth of stuff. Will I get around $400K if it's all gone? Without a detailed video and pictures of everything I've accumulated in my life how would anyone know what I owned?

The worst would be paying for a TON of insurance year after year after year, and then when you actually use it you only get 2/3 of what you have ever paid in via premiums. I'd rather underinsure a little, betting AGAINST a total loss, and if the worst happens at least I get 100% of what I've been paying into in premiums... even if I have to pony up 10 or 20% out of pocket for an extreme black swan event.

As I understand it you will not automatically get your full personal property coverage without evidence. Of course be sure you have replacement cost insurance -- on everything other than electronics you'll come out far ahead - -think of a closet full of clothes -- as is value is pennies on the dollar of replacement cost. 

It makes a lot of sense to at least go through the house taking detailed video and photos of more expensive items every six months or so. Include sweeps of the closets. In the unlikely event of a total loss you will be more credible with your claim if you have evidence. I do it when I check the smoke and CO2 detectors, then the footage gets backed up to the HD that contains all of our computer backups (rotates to safety deposit box once a month). Also have a photo and serial number database for electronics, bikes, etc., plus appraisals for the two more costly jewelry pieces DW inherited. 

Our house is also overinsured and it doesn't make too much sense, but you CAN go over the model carefully with your agent looking for accurate info on finishes, etc. -- I did so and managed to get a $40k drop in insured value, which saved a few bucks on the premium.

Insurance is a really weird product -- you buy it hoping never to need it! 

highstatuspol said:   I have to say I really hate insurance agents. They keep talking like they're doing you this huge favor.

"You're SO WELL INSURED!! Your assets are TOTALLY SAFE thanks to this tremendous amount of coverage!"

Meanwhile if your house burned down you would probably have to fight tooth and nail to get anywhere NEAR the numbers you're paying for today.
 

  This. I'm looking through my policies and some of my houses are 100k+ under insured (appreciation in S FL) and some are WAY over insured. Someone told me if you are under-insured the ins. company does not pay out the whole policy limit.. Apparently there is some penalty or something. Not sure if this is BS.

No but I have claimed a total gain.

These are all excellent questions for your insurance agent. They do have training in this.

You're more or less not allowed to deliberately underinsure the structure and contents, other than though having the highest deductible available. Google "co-insurance clauses".

I've had one insurance company that spelled out exactly why they forced me to overinsure my house directly. Short version: Your house would cost $350k to build tomorrow if it burnt down. If there was a hurricane/tornado/other covered disaster that causes damage to multiple houses in the area at the same time that builder's going to pause building the $350k houses since his subcontractors will all be being paid 1.5-2x normal rates by everyone getting their houses fixed, and probably try to sell the ones he just finished for $450k since there's suddenly less houses than people.

I'll see if I can find where they actually wrote this down but it made sense.

FWIW Liberty Mutual allowed me to reduce my amount of coverage within reason (but I don't recall what the range was for them) - I ended up insuring for about 50K less (for a $300K home) than a competitor (even though I feel I am still more than adequately covered). I'm sure a lot depends on the state too. I would also make sure they aren't using some Tax record, transfer record, etc that shows your house as much larger/more expensive than it really is (i.e their computer shows 6 beds instead of 3, etc)

juliox said:   I've had one insurance company that spelled out exactly why they forced me to overinsure my house directly. Short version: Your house would cost $350k to build tomorrow if it burnt down. If there was a hurricane/tornado/other covered disaster that causes damage to multiple houses in the area at the same time that builder's going to pause building the $350k houses since his subcontractors will all be being paid 1.5-2x normal rates by everyone getting their houses fixed, and probably try to sell the ones he just finished for $450k since there's suddenly less houses than people.

I'll see if I can find where they actually wrote this down but it made sense.

  That makes sense, but at the same time its not fair that the insurance can speculate what the prices might or might not be. That would have to be a Katrina+ type event to impact the local market that significantly.  That's not a True Value/cost.  I've also seen policies that have a built in 25-50% boost if rebuild cost overruns coverage.

One issue is that if chose to insure for less than 80% of the rebuild cost you need to use a different type of Homeowners insurance that will only pay a pro-rata coverage for partial losses. For example if your home has an estimated replacement (rebuild) cost of $500K, and you chose to only insure for $350K (70%), the insurance will only pay 70% of the cost of replacing your roof damage from a hailstorm. If you have 80% or more coverage, you would be entitled to 100% (actual damage) coverage for the roof under the standard contract.

The Insurance contract in the two cases is different and the insurance company will penalize the Agent (now sure how much) if they under insure you under the standard (full replacement) contract and you incur a total loss that exceeds the insured value by more than 25% : Under the standard contract the Insurance Company may be liable to pay the full replacement cost regardless of the face value of coverage.

In short, you are free to under-insure, but not using the standard contract (Form HO-7 or HO-5) which guarantees full replacement cost coverage. Even under the standard HO-5 contract some Agents will be more flexible (willing to take some risk to make the sale), but no Agent will allow you to insure for less than 80% of full replacement cost.

OP join the club.  Yup, insurance companies tell you the cost to rebuild etc etc even though we all know they'll never pay out anything close to that if you had to rebuild...The disparity between what I paid for my home and what it's worth and what it's insured for is even greater then yours...

highstatuspol said:   So why are insurance agents telling me I have no choice but to insure for astronomical amounts?  Why can't I "underinsure"?So your mortgage is paid off ?

highstatuspol said:   after paying for years for a $80K Altima....
 

What kind of Altima is $80k?  When I started buying home insurance, they sold me $19K for building property coverage because the HOA master policy covered everything from the walls in.  The following year, the HOA decided they were only going to pay to rebuild the walls, floor, and roof.  So I upped it to $68K but I have no idea if that's enough.  If my condo is totaled, then so are all of my neighbors' homes and I'd be lucky to see a penny.  One thing is for sure, every year the coverage limits for personal property and building property goes up but never down.

highstatuspol said:   
My home policy is expensive, like $1k/year for a standard $1k deductible home policy.  If I could get dwelling coverage down to a sane amount it would be $700 or less.  $300 per year after taxes is a lotta cashola!  


 

  
If you are so willing to absorb some loss, why don't you see what you save with a $5k deductible?

I got a renewal recently and spoke to my agent and reduced my covered amount by close to $100k for dwelling.

xoneinax said:   
highstatuspol said:   So why are insurance agents telling me I have no choice but to insure for astronomical amounts?  Why can't I "underinsure"?
So your mortgage is paid off ?

  
I have around 100k left.

Jamieson22 said:   
highstatuspol said:   
My home policy is expensive, like $1k/year for a standard $1k deductible home policy.  If I could get dwelling coverage down to a sane amount it would be $700 or less.  $300 per year after taxes is a lotta cashola!  


 

  
If you are so willing to absorb some loss, why don't you see what you save with a $5k deductible?

I got a renewal recently and spoke to my agent and reduced my covered amount by close to $100k for dwelling.

  I'm willing to accept the risk of having to absorb a large loss if a 1-in-thousands event occurs - how often do "total loss" insurance claims happen?  I'm not in a tornado or forest fire or earthquake or hurricane prone place ... I'm in wny.  We get snow.  Chances of my newish build going up in flames is tiny.

I don't want a 5k deductible because there IS a realistic chance I'll need to file a claim for some kind of issue, at some point.  And if I had an $8k issue I don't want to shoulder a $5k deductible.

 

You won't take a 5k loss but you're willing to take a 100k+ one?

highstatuspol said:   I touched on the personal property thing - wondering about how that is handled in a total loss situation as well. I probably have around $400K worth of stuff. Will I get around $400K if it's all gone? Without a detailed video and pictures of everything I've accumulated in my life how would anyone know what I owned?

The worst would be paying for a TON of insurance year after year after year, and then when you actually use it you only get 2/3 of what you have ever paid in via premiums. I'd rather underinsure a little, betting AGAINST a total loss, and if the worst happens at least I get 100% of what I've been paying into in premiums... even if I have to pony up 10 or 20% out of pocket for an extreme black swan event.

 First of all, make sure you have replacement cost coverage on your contents. Most, but not all, policies do. In the event of a total loss (or any loss), you would prepare an inventory of the damaged property. Your insurer would pay you the "actual cash value" of your property up front. So they might pay you $20 for a shirt that you paid $40 for brand new 3 years ago. Then once you replace the property, you would get reimbursed up to the actual replacement cost. This is somewhat oversimplified, but close enough.

highstatuspol said:   
xoneinax said:   So your mortgage is paid off ?
 

  
I have around 100k left.

a lot of posts in this thread, but nobody getting directly to the point:

if a lender has an interest in your home (ie. mortgage), then YOU ARE BEHOLDEN TO THEIR WISHES PROVIDED THEY ARE LEGAL AND CONSISTENT WITH YOUR MORTGAGE REQUIREMENTS.

if you pay the mortgage off, you can do whatever the hell you want. in the meantime (that is - if you want to keep the mortgage) - call your lender and your insurance agent and see if they will accept less coverage or a lower deductible. It's possible they will - mine did recently. but they are likely not required to. at your own risk - you CAN just change it, and see if they notice....they may not. your insurer doesn't ask them for permission, typically.

i lol'd at your whining about how much you pay, OP. that policy would be $2500-$3000 here.

and i've "totaled out" my insurance twice...on the same house, in fact. once for Katrina (flood policy), once a couple years later when that house burned down (bad wiring - HO policy)....and now I am currently working on about a 50% damage when a different house flooded 4'. kinda getting tired of New Orleans weather, although these events generally do result in profit.
 

highstatuspol said:   I figure I could sell it for around 320k today.
my house is insured for 490k.... other guy says I need to be insured for 520k.

In my area, my 2500K sq ft house could be rebuilt from the ground up for about $150/sq ft if I included a bunch of premium finishes and a top-tier builder.  So why can't I choose $375k as my dwelling value? 

I could absorb a slight kick to my net worth if for some reason my house burned to the ground and it required $420k to rebuild.

My home policy is expensive, like $1k/year ... a sane amount it would be $700 or less.  $300 per year after taxes is a lotta cashola!  
 

  
Do the math, and calculate the risk.  

Say you get what you're looking for:  $700/yr for $375k of coverage.  
Something terrible happens next year, the builders are swamped, and it costs $420k to rebuilt and make you whole again.  But, your policy is tapped out, so you've saved $300, but you're out $45k.  

40 years from now, the same event happens:  Assuming a 3% year-year premium increase and a consistent savings differential, you've saved something like $23k.  But now your home is insured for ~$1.2M, and costs ~1.3M to rebuild.  You're out a bunch, for little savings.  

In my experience, the coverage level doesn't impact the premium all that much. I've paid $700/yr for a $120k house, and $1k/yr for a $400k house. So even if you got it dropped, you are talking a few bucks a month in savings.

Infinion said:   
highstatuspol said:   I figure I could sell it for around 320k today.
my house is insured for 490k.... other guy says I need to be insured for 520k.

In my area, my 2500K sq ft house could be rebuilt from the ground up for about $150/sq ft if I included a bunch of premium finishes and a top-tier builder.  So why can't I choose $375k as my dwelling value? 

I could absorb a slight kick to my net worth if for some reason my house burned to the ground and it required $420k to rebuild.

My home policy is expensive, like $1k/year ... a sane amount it would be $700 or less.  $300 per year after taxes is a lotta cashola!  

  
Do the math, and calculate the risk.  

Say you get what you're looking for:  $700/yr for $375k of coverage.  
Something terrible happens next year, the builders are swamped, and it costs $420k to rebuilt and make you whole again.  But, your policy is tapped out, so you've saved $300, but you're out $45k.  

40 years from now, the same event happens:  Assuming a 3% year-year premium increase and a consistent savings differential, you've saved something like $23k.  But now your home is insured for ~$1.2M, and costs ~1.3M to rebuild.  You're out a bunch, for little savings.  

that's not "math", that's pure conjecture, and a lot of assumptions. 

builders could only demand a huge premium like that if the whole area was damaged, and badly....and OP is not in a very hazardous area. even if OP was, he/she said that the 350k would cover high-end finishes AND THE LAND. so it's a very high estimate.

and your "40 years from now" example doesn't warrant a response.

I don't know about other peoples mortgage docs, but mine simply included a statement about insuring against some % (maybe 90-100) value of the land + improvements. Well I just bought the darn thing, so the market just told you the exact value of the land + improvements, which means I should have a really strong argument to have it insured for the purchase price. Further, the mortgage company should really only care about me being insured for my outstanding principal, which is never going to be more than the purchase price.

So I was also very surprised to hear that after my agent shopped around, the cheapest policy included an insured value of what I just paid + 25%. I also just assume they are never going to pay that much (even with a total loss), since that has been my experience with insurance.

Also, the numbers I'm quoting separated the property from its contents. If my house was bought for $250k, they required an insured house value of like $350k or something silly. Then property and liability were listed as separate amounts.


This whole thing bothered me too, I asked my agent. He just said it was the cost to rebuild, blah, blah. Very unsatisfactory answer.

panmet69 said:   I don't know about other peoples mortgage docs, but mine simply included a statement about insuring against some % (maybe 90-100) value of the land + improvements. Well I just bought the darn thing, so the market just told you the exact value of the land + improvements, which means I should have a really strong argument to have it insured for the purchase price. Further, the mortgage company should really only care about me being insured for my outstanding principal, which is never going to be more than the purchase price.

This whole thing bothered me too, I asked my agent. He just said it was the cost to rebuild, blah, blah. Very unsatisfactory answer.
 

you are confused. not wrong necessarily, but you don't understand how this works.

there are generally two types of policies - ACV (actual cash value) and replacement cost...the latter usually includes much more coverage and higher premiums. banks don't want you to have ACV because they don't trust that you can repair the house for that price, and they'd like the house to be repaired. they don't want you to just pay them off and then go sell what's left of the house, either (i guess because they don't profit in any way)...so you're stuck with a replacement cost policy.

solarUS said:   
panmet69 said:   I don't know about other peoples mortgage docs, but mine simply included a statement about insuring against some % (maybe 90-100) value of the land + improvements. Well I just bought the darn thing, so the market just told you the exact value of the land + improvements, which means I should have a really strong argument to have it insured for the purchase price. Further, the mortgage company should really only care about me being insured for my outstanding principal, which is never going to be more than the purchase price.

This whole thing bothered me too, I asked my agent. He just said it was the cost to rebuild, blah, blah. Very unsatisfactory answer.

you are confused. not wrong necessarily, but you don't understand how this works.

there are generally two types of policies - ACV (actual cash value) and replacement cost...the latter usually includes much more coverage and higher premiums. banks don't want you to have ACV because they don't trust that you can repair the house for that price, and they'd like the house to be repaired. they don't want you to just pay them off and then go sell what's left of the house, either (i guess because they don't profit in any way)...so you're stuck with a replacement cost policy.

  
I understand the difference between actual cash value and replacement cost. I didn't think that applied to dwelling / house structure insurance. Who would ever want actual cash value? (IE the depreciated cost of the wood, metal and materials in the house?). I assumed every coverage of this type was replacement cost. 

Here is the exact quote from my mortgage docs:
Mortgage Docs said: Listed below are your Lender’s policies and procedures and minimum requirements for Hazard Insurance which must be provided covering the subject property unless otherwise provided by applicable state law:

1. Coverage must equal the lesser of the following:
• 100% of the insurable value of the improvements, as established by the property insurer, or

• the unpaid principal balance of the mortgage, as long as it equals the minimum amount—80% of the insurable
value of the improvements—required to compensate for damage or loss on a replacement cost basis. If it does
not, then coverage that does provide the minimum required amount must be obtained.


So I'm required to have the lesser of the two. 80% of the insured value of the improvements - replacement cost basis. But my 250k house is still insured for 315k, which would seem to be above my contractual minimums.  

 

panmet69 said:   
I understand the difference between actual cash value and replacement cost. I didn't think that applied to dwelling / house structure insurance. Who would ever want actual cash value? (IE the depreciated cost of the wood, metal and materials in the house?). I assumed every coverage of this type was replacement cost. 

 

me. most of my ~15 policies are ACV's. I only want them for catastrophic loss.  place burns down, they give me enough to cover the loss. no mortgages, though, so I can do whatever I want.

also...all federal (FEMA) flood policies on rental property don't cover depreciation.

ananthar said:   One issue is that if chose to insure for less than 80% of the rebuild cost you need to use a different type of Homeowners insurance that will only pay a pro-rata coverage for partial losses. For example if your home has an estimated replacement (rebuild) cost of $500K, and you chose to only insure for $350K (70%), the insurance will only pay 70% of the cost of replacing your roof damage from a hailstorm. If you have 80% or more coverage, you would be entitled to 100% (actual damage) coverage for the roof under the standard contract.

The Insurance contract in the two cases is different and the insurance company will penalize the Agent (now sure how much) if they under insure you under the standard (full replacement) contract and you incur a total loss that exceeds the insured value by more than 25% : Under the standard contract the Insurance Company may be liable to pay the full replacement cost regardless of the face value of coverage.

In short, you are free to under-insure, but not using the standard contract (Form HO-7 or HO-5) which guarantees full replacement cost coverage. Even under the standard HO-5 contract some Agents will be more flexible (willing to take some risk to make the sale), but no Agent will allow you to insure for less than 80% of full replacement cost.

  Most of this is close, but not quite... HO policies do not have true "co-insurance" requirements that commercial building policies have. Rather, they have "insurance to value" clauses. Generally, you must carry 80% of the full replacement cost of your dwelling. If you do not, you will be penalized. Most policies will pay the GREATER of actual cash value of the loss or a percentage of the loss (Amt of coverage you had divided by amount of coverage you should have had. In your example, insurance would pay the greater of ACV or the penalty ($350K "did"/$400K "should" or 87.5% of the loss).

There is no "formal" mechanism to punish an agent for under-insuring built into a policy. Many policies have an inflation guard that will pay up to an additional 25% (some actually have no cap) if you find that you are inadequately covered.

These are the standard ISO HO policies-
HO1 - Standard Perils - Almost never see this
HO2 - Extended Perils - Almost never see this
HO3 - Open Perils ("All Risks" for building) - Most common, probably 95% of single family homes.
HO4 - Renters policy, essentially contents only
HO5 - Similar to HO3 but adds "all risks" for contents. More common on the high end like Chubb. 
HO6 - Condo/Unit Owners - Contents coverage plus some building coverage for improvements plus loss assessment coverage
HO7 - Not sure this is in use
HO8 - Almost never see this. Used for older buildings where rebuilding might not be economically feasible.



 

TravelerMSY said:   You won't take a 5k loss but you're willing to take a 100k+ one?
  
Never took a stats class I take it?

Your house is not insured against a nuclear strike.  Ermagerd! Why don't you get a rider to include that that, are you willing to take a $TOTALLOSS?  Or do you understand the correlation between risk and benefit?

solarUS said:   
highstatuspol said:   
xoneinax said:   So your mortgage is paid off ?
  
I have around 100k left.

a lot of posts in this thread, but nobody getting directly to the point:

if a lender has an interest in your home (ie. mortgage), then YOU ARE BEHOLDEN TO THEIR WISHES PROVIDED THEY ARE LEGAL AND CONSISTENT WITH YOUR MORTGAGE REQUIREMENTS.

if you pay the mortgage off, you can do whatever the hell you want. in the meantime (that is - if you want to keep the mortgage) - call your lender and your insurance agent and see if they will accept less coverage or a lower deductible. It's possible they will - mine did recently. but they are likely not required to. at your own risk - you CAN just change it, and see if they notice....they may not. your insurer doesn't ask them for permission, typically.

i lol'd at your whining about how much you pay, OP. that policy would be $2500-$3000 here.

and i've "totaled out" my insurance twice...on the same house, in fact. once for Katrina (flood policy), once a couple years later when that house burned down (bad wiring - HO policy)....and now I am currently working on about a 50% damage when a different house flooded 4'. kinda getting tired of New Orleans weather, although these events generally do result in profit.

  
You may lol about my whining but I can pretty much guarantee I'll never have a total loss, meanwhile you've had two so far.  I'd say you're getting a deal with anything you pay down there.

highstatuspol said:   
OIiverQuackenbush said:   its not insured for what you could sell your house for. its insured for the replacement cost. they figured out how much lumber, drywall, shingles, and nails were used to make your house. they went to menards and then calculated what all that stuff cost. thats what they require you to insure it for, the cost of the wood.
  
I could duplicate my house, exactly the way it is, with one of the top builders in my area, with granite and hardwood and custom trim and all the goodies for $350k.  That includes the plot of land!

I know this because we were going to build our exact house, just before we stumbled on a house that was 95% of what we wanted, and actually a little bigger, and paid $270k for it.

So what's magical material are they using to come up with $520k??  

This does seem to be a widespread problem. My house seems over-insured by 20% or so. My parent's house seems way over-insured. Agent just stuck to their replacement cost calculations when questioned. 1100 sf very basic construction insured for over $200,000.

Some states, including mine (NH), have "value policy" laws. In the event of a total loss by fire, the insurer must pay the full value of the policy regardless of the actual cost to replace. In theory, this would make insurers not want to over-insure. But total losses by fire are a small subset of all losses. So the incentive to not over-insure seems small.

rascott said:   In my experience, the coverage level doesn't impact the premium all that much. I've paid $700/yr for a $120k house, and $1k/yr for a $400k house. So even if you got it dropped, you are talking a few bucks a month in savings.
  
Not true - your old house was almost certainly an 'older house' and carried with it a higher risk premium.  Newer houses have more current codes and often more safety features resulting in reduced risk for the insurer.

Skipping 40 Messages...
highstatuspol said:   I touched on the personal property thing - wondering about how that is handled in a total loss situation as well. I probably have around $400K worth of stuff. Will I get around $400K if it's all gone? Without a detailed video and pictures of everything I've accumulated in my life how would anyone know what I owned?

The worst would be paying for a TON of insurance year after year after year, and then when you actually use it you only get 2/3 of what you have ever paid in via premiums. I'd rather underinsure a little, betting AGAINST a total loss, and if the worst happens at least I get 100% of what I've been paying into in premiums... even if I have to pony up 10 or 20% out of pocket for an extreme black swan event.

 You need to talk with your insurance company about the personal property limits and getting riders for anything above the limit. For instance USAA will not insure an individual piece of jewelry for over $2500 without a complete description and value of each piece. There are other limits for coins, guns, musical instruments, and cameras. Getting a UL rated safe and a monitored alarm system may be another requirement with the amount of valuables you are insuring. If you have a loss from something like burglary, fire, flood, you will need proof of what you lost and the replacement value. The average person has around $35000 in personal property. You will require more proof of your loss when you have ten times the insured amount. In CA the insurance company cannot ask for unreasonable proof such as asking for receipts when photographs are provided. Also understand the difference between actual cash value, and replacement cost insurance. Replacement cost is 10-20% more expensive but the payout amounts are drastically different. If your 6 year old tv is stolen the actual cash value is going to be less than half of the replacement cost.

In CA the lender and insurance company cannot force you to get insurance for the mortgage/market value, only the rebuild cost. Condos are selling for $600+ a sqft when rebuild costs are closer to $200 where I live. They would never pay out the $600 sqft value when the rebuild cost is lower if there was a fire or similar. This doesn't apply to your situation where the replacement cost is higher than the market value.



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2017