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Old 06-11-2014, 07:03 AM   #21
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Earlier this year I did a mortgage refinancing. The mortgage company got hung up on insured value for the dwelling, despite the fact that the mortgage amount was actually less than the land value.

We went several rounds back and forth with the mortgage company insisting they needed to see the insurance company's estimating data. This finally worked:
Quote:
My agent has confirmed [Insurance Company] replacement cost data is proprietary and not available for release to me or [Mortgage Company].

On page 1 of the declarations page I previously provided, my base dwelling coverage is $322,000. I have attached rider HO-420 to my policy, which is referenced as “30% specified additional amount of coverage – dwelling” on page 2 of the declarations page. Multiplying $322,000 by 1.3 yields $418,000 in dwelling coverage available in the event of a catastrophic loss.

My house is 2100 square feet of livable area. Thus I am covered for a replacement dwelling at a cost of $200 per square foot.

[Insurance Company] and I agree this is sufficient coverage protecting me (and the mortgage holder) from a total loss of the dwelling.

I haven’t received my [Mortgage Company] appraisal report yet, but I know from County records the land value of my lot is some $300,000. You have reported a total appraisal value of some $650,000.

The difference is an appraisal-based dwelling value of $350,000 (or $167 / sq.ft. ). This is far less than my $418,000 in coverage.

I will also point out that I have had my [Insurance Company] policy since shortly after my wife and I built the current dwelling in 1999. [Insurance Company] was provided with my builder contract at that time. The current coverage amount therefore is the inflation-adjusted actual construction cost of my home, not a cookbook calculation.

Finally, listed below are links to three current listings for homes under construction within four blocks of my house, along with links to the County records showing lot values. By taking the builder’s list price, subtracting lot value and dividing by square footage (same method as above), the actual cost per square foot to build a new dwelling in my neighborhood ranges from $150 to $180 per square foot. Once again, this is significantly less than my replacement coverage.

I trust this data will satisfy [Mortgage Company]’s questions. If not, please provide an explanation for why you believe $418,000 in dwelling replacement coverage is insufficient.
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Old 06-11-2014, 08:25 AM   #22
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To rebuild my house would cost way more that the market value. Attribute it to the quality and type of construction that would be involved. Such as 90% of the area is finished with 100% oak flooring (no laminates or veneers). And, except for the added-on family room, it is entirely plaster walls (only family room is drywall).

Back on 2007, the house was hit by lightning over the kitchen. Fire was contained to the attic (about 1/3 roofing system was replaced) and kitchen. Cost to restore house to original condition was about $110,000. But the market value of the house with land was about $170,000. Restoration is not cheap!
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Old 06-11-2014, 02:04 PM   #23
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Originally Posted by RE2Boys View Post
To rebuild my house would cost way more that the market value. Attribute it to the quality and type of construction that would be involved. Such as 90% of the area is finished with 100% oak flooring (no laminates or veneers). And, except for the added-on family room, it is entirely plaster walls (only family room is drywall).
This is my concern. While my oak hardwood floors are 60 years old and not pristine, I still want to replace them if needed. My insurance agent sends out a letter about every two years on the importance of replacement costs. But when I met with one of his employee's to review my home insurance, I had to argue to increase the coverage to ensure that I would get actual replacement costs and would be able to afford to rebuild up to code.

I'm probably overpaying but I want to be able to sleep at night, especially given the ongoing drought and my close proximity to the dry river bosque and the extreme fire danger. I was never able to get a definitive answer from the agent's employee on their replacement policy, e.g., I have read on the internet that insurance companies will argue that drywall is equivalent to plaster as the plaster is cost prohibitive to replace.
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Old 06-11-2014, 03:29 PM   #24
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Originally Posted by H2ODude View Post
. However, when I've tried to go less than market they balk. It's in their interest to have it insured for as much as possible in my opinion.
We had an interesting problem.

Twenty five years ago, we acquired my grandfather's property upon his passing.

We found that he had it insured for only $15,000 "because that's what I paid for it back in 1923" (don't even ask)

The property is fairly large, oceanfront and, even though DW and I are not big on insurance, we were horrified at the coverage. Let's just say it was worth.....a whole lot more....( we were already in the process of putting a few $100K into upgrades etc.)

When we went to the current insurer, they outright refused to insure it for more than $25K, saying "you cannot make such a big increase all at once!". They were more focused on the the percent of increase than the property's actual value!

We brought in appraisals, photos etc directly to the company (not an agent) and were told "no".

We went out and found someone who took us in with open arms!

Twenty five years later, for the life of me, I cannot understand their thought process........
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Old 06-11-2014, 06:42 PM   #25
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I still have not figured out why I can't insure the amount I want to. What is it to them? If I can pay the mortgage company off it should be no concern to them.
It's a matter of everyone paying a fair premium in relation to their expected losses. Because of smoke detectors and access to local fire departments, total losses are rare. Typically it's a kitchen fire or a lightning strike. Let's say your house is worth $200K but you want to insure it for only $100K because it's paid off and you figure that's the worst loss you'll ever have. Should you pay the same premium as the person down the street who really does have a $100K house and insures it for that? You've got a much bigger probability of a $100K loss than they do. (Trust me, I'm a retired property/casualty actuary. )

And I like the tactic suggested earlier of subtracting a reasonable value for the land, backing into cost per square foot, and comparing it to new construction. I'll have to remember that.

The story of the company willing to insure an oceanfront house for $15K floored me- then I realized the insurer was probably happy to be on the hook for only that much if it washed away in a hurricane. My parents have a house a mile away from the beach, fully paid for, and just decided to go bare. They said the land is worth more than the house, anyway.
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How to determine homeowners insured value
Old 06-11-2014, 06:53 PM   #26
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How to determine homeowners insured value

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Originally Posted by athena53 View Post
It's a matter of everyone paying a fair premium in relation to their expected losses. Because of smoke detectors and access to local fire departments, total losses are rare. Typically it's a kitchen fire or a lightning strike. Let's say your house is worth $200K but you want to insure it for only $100K because it's paid off and you figure that's the worst loss you'll ever have. Should you pay the same premium as the person down the street who really does have a $100K house and insures it for that? You've got a much bigger probability of a $100K loss than they do. (Trust me, I'm a retired property/casualty actuary. )

And I like the tactic suggested earlier of subtracting a reasonable value for the land, backing into cost per square foot, and comparing it to new construction. I'll have to remember that.

The story of the company willing to insure an oceanfront house for $15K floored me- then I realized the insurer was probably happy to be on the hook for only that much if it washed away in a hurricane. My parents have a house a mile away from the beach, fully paid for, and just decided to go bare. They said the land is worth more than the house, anyway.

I understand to an extent what your saying. And mainly because I am only thinking in terms of "I want $100,000 of insurance and I will cover the rest". The other person could insure less too and pay less and cover the additional repair cost. But in reality to me anyways is the other extreme that is where I am at. I can't get them to insure under 200k and pay 50k for out buildings that I have no such type of building. So I guess there I am subsidizing other peoples buildings or the insurance carriers profits for paying for something that I do not have. Nothing short of nuclear radiation needing to dig my yard 100 yards deep into the ground would I ever need the cost amount of coverage I am forced to carry. Sorry, end of rant.



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