topic Re: HOME INSURANCE COVERAGE??? in Mortgage Loans

HOME INSURANCE COVERAGE???

Takunda1 — Thu, 19 Nov 2009 01:17:06 GMT

Okay so I was requesting some quotes for home owners insurance today. Well I called BOA and spoke to a lady who after asking several questions said they would insure the home for $244K even though we are buying thehouse for 206K. She said this is to cover increased cost of building material, should say the whole house burn down and need to be replaced. The other quote I got, the guy just quoted me for the $206k purchase price.

So my question to all home owners is, do you insure based on current value of the home or projected price over time incase something should happen that requires a total rebuild of the home. Also any tips on what not to miss when getting a homeowners policy would be greatly appreciated.

Re: HOME INSURANCE COVERAGE???

Anonymous — Thu, 19 Nov 2009 02:47:20 GMT

Usually you insure for replacement cost.

Message Edited by mickie08 on 11-18-2009 06:47 PM

Re: HOME INSURANCE COVERAGE???

Takunda1 — Thu, 19 Nov 2009 03:26:19 GMT

So is it safe to assume that replacement cost will be higher than purchase price, thus the 244k coverage would be best?

Re: HOME INSURANCE COVERAGE???

Lel — Thu, 19 Nov 2009 03:32:03 GMT

You should insure for the replacement cost, as already mentioned. Going by sales price can be very misleading, especially in high cost areas. My home, for example, is insured for an amount that is less than half of its market value.

I read an article a year ago about people in San Diego who lost their homes in the wildfires a while back. Many were underinsured, and were unable to rebuild their homes to the same specifications as before.

Re: HOME INSURANCE COVERAGE???

DallasLoanGuy — Thu, 19 Nov 2009 04:02:17 GMT

scrutinize the content value coverage.... most people are WAY over insured here.

Re: HOME INSURANCE COVERAGE???

Anonymous — Thu, 19 Nov 2009 04:18:51 GMT

Definitely make sure you insure for rebuild cost. Usually policies will insure for a certain amount plus 20% as a cushion against high lumber costs, etc. This is especially important in a REO/short sale...we paid $243K, but it appraised for $290K and rebuild is $320K. We're insuring for $320K...it wasn't much higher of a premium.

Re: HOME INSURANCE COVERAGE???

Anonymous — Thu, 19 Nov 2009 04:20:02 GMT

Also when buying homeowners, something I liked in some policies (most all had about the same coverage) was that some will pay for replacement of personal items, vs. actual depreciated value. Just something to think about.

Re: HOME INSURANCE COVERAGE???

kai_1103 — Thu, 19 Nov 2009 18:06:22 GMT

You do not insure the land. Will you need to "replace" the land- of course not, so don't insure it. Often people don't insure the houses foundation either depending on what type of foundation you have (here in Florida with no basements- its more typical that if you have basements or a stilt house, etc.) You need to only look at replacement cost of the house. It is different from the purchase price that includes land. You may want to get an appraisal of the replacement cost. They are essentially out of a "book of costs". Construction costs are not going to go through the roof this year- and you will renew your policy annually. You are buying insurance today for one year - not in 10 years. Insurance is a money making business so don't let them "fear" you into more coverage then you could possibly need.

Incinva makes a good point about the contents of your home, too.

Good luck!!

Re: HOME INSURANCE COVERAGE???

Anonymous — Thu, 19 Nov 2009 18:21:34 GMT

you may not have to re-purchase land and you may have to. That depends upon what happens (i.e id you are in a bad flood area, earthquake area/etc). Also, although you do not have to insure the cost of the land, id you just insure the material cost of building a house, you will end up short in case of a catastrophic situation, unless you are going to do alot of the clearing and cleaning up work yourself. That is why a bunch of the people out here in San Diego got in trouble after the last wild fires. It might cost 300K to re-build their house so they insure for 300K. But, that doesn't count costs of stripping out old foundations, etc/clearing debri, etc. So in the end, alot of people either could not rebuild, had to put their own money into it, or had to rebuild less than what they had in the beginning. The price difference on most homeowners insurance is not much more for better coverage and is the one area I think underinsuring is a bad decision. My yearly insurance premium for my 320K house is somewhere in the neightborhood of 550. If I were to drop my coverage to mimimum levels it would be about 450. I have 150 % coverage with roughly 100K in personal property coverage. $8 per month is not enough for me to risk serious damage/loss. That equations can be different in high insurance areas with relatively low property values I admit.

Re: HOME INSURANCE COVERAGE???

Takunda1 — Fri, 20 Nov 2009 03:09:06 GMT

Thanks everyone for your input. This is what we have decided. Sales price was 206K, cost of land is 34K, so we got coverage for 244k. Yearly premium is 717 after all the discounts. Do you think this sounds reasonable?

Year Built: 2009

Little Elm, TX 75068 Square Foot 3023

Construction Type Veneer

Insurance Company Meritplan Insurance Company

This quote includes: Extended Replacement Coverage On Your Dwelling.

A. Dwelling $244,000.00 D. Addl Living Expense $36,600.00

B. Other Structures $12,200.00 E. Personal Liability $300,000.00

C. Personal Property $122,000.00 F. Medical Payments $1,000.00

Deductible: $1,000.00

Estimated Annual Premium $717.00

**THIS POLICY DOES NOT INCLUDE COVERAGE FOR EARTHQUAKE OR FLOOD.

Note: Additional endorsements may have been included in this quotation.2

Please consult your agent if you have any questions regarding the comprehensive coverage of this package.

Re: HOME INSURANCE COVERAGE???

Lel — Fri, 20 Nov 2009 05:43:55 GMT

Takunda1 wrote:

Thanks everyone for your input. This is what we have decided. Sales price was 206K, cost of land is 34K, so we got coverage for 244k. Yearly premium is 717 after all the discounts. Do you think this sounds reasonable?
Year Built: 2009
Little Elm, TX 75068 Square Foot 3023
Construction Type Veneer
Insurance Company Meritplan Insurance Company
This quote includes: Extended Replacement Coverage On Your Dwelling.
A. Dwelling $244,000.00 D. Addl Living Expense $36,600.00
B. Other Structures $12,200.00 E. Personal Liability $300,000.00
C. Personal Property $122,000.00 F. Medical Payments $1,000.00
Deductible: $1,000.00
Estimated Annual Premium $717.00
**THIS POLICY DOES NOT INCLUDE COVERAGE FOR EARTHQUAKE OR FLOOD.
Note: Additional endorsements may have been included in this quotation.2
Please consult your agent if you have any questions regarding the comprehensive coverage of this package.

I don't know much construction costs are in TX, but in my area that amount would not come close to rebuilding a 3000 square foot home. But check to see what "extended replacement coverage" means - it might actually mean that you're covered for a certain percentage above the face value of the policy.

You could speak to a local builder to find out how much it would cost to rebuild your home in case of catastrophic loss.

I can imagine that there are limits to how much coverage you can get depending on the purchase or appraised value.

[Edited to correct typos and poor grammar.}

Message Edited by Lel on 11-19-2009 09:43 PM

Re: HOME INSURANCE COVERAGE???

Anonymous — Fri, 20 Nov 2009 05:23:11 GMT

Well, I don't know about the rebuild cost either...just depends on the area. The house we just bought is 2900 sqft, and while admittedly it is a custom home and the sellers did a lot of upgrades, our rebuild is $320, which two independent appraisers agreed on. $244K of coverage is a very little amount for a 3000 sqft home.

furthermore - I got exactly the same coverage as you with a rebuild of $320K - so about 80K more in coverage - and my annual premium is $541. Plus I got double the personal property coverage. I know it varies from state to state, as well as type of dwelling etc.etc., but I would definitely check around.