Can a home insurance company increase the amount of insurance on your house without your request?

Question

Of course when the amount of insurance in increased, the insurance premium also increases. I have only $125,000 left on the mortgage and insurance company has increased the insurance to cover a value of $305,000. Real estate value of the home is $450,000. My credit rating is excellent and I have not had any insurance claims

Answer 1

Yes. Part of the policy condition is that you insure the home to either 80%, 90%, or 100% of the replacement value, on a standard HO3 Homeowners form. So, if you want the type of policy that is NOT a replacement policy, you'll have to get a whole different kind of policy.

Of course, a FLAT RATE policy costs about ten times as much as a standard policy.

Real estate value, or market value, has NOTHING to do with the cost to rebuild. If the house burns to the ground, the insurance company does NOT have an option to "buy" it from you for the face amount - they are required to rebuild.

So, you can do it your way, and pay a way, way, way lot of money for a small amount of coverage, or you can do it the insurance company's way, and insure to full replacement value, for less money.

Or, what most people like you prefer to do, is just get a personal loan for the balance of the mortgage, so you can pay off the mortgage, and not insure the house at all.

Answer 2

This is probably to cover you in case of a loss (sounds prudent to me)
If you were to have a fire, you would want to have the house rebuilt and it would cost more than the $125K mortgage. Usually you insure the value of the house (minus the land value) and 2/3 of the value for contents.

You can always increase the deductible if your concern is lower premiums but in the event of a fire or break-in you would be responsible to pay the first (example: $500 instead of the first $250

Home Values are increasing (along with the salaries of builders or repairs) so the higher cost may be prudent. Possibly the insurance co. should have given you advanced notice but on the other side of the coin if you had a fire and it would cost $450K to rebuild and found out you were only going to receive $350K you'd probably be more upset with your insurer.

Shop around but also compare each companies level of service or if anyone has ever had a problem with a claim. Sometimes that's more imporatnt then the added cost

Answer 3

Home insurance is not based on what is left on your mortgage. They go on how much it would cost to replace your home in todays market. Most companies have a 5-10% inflation where it will automatically increase to that amount without your concent. If you have $X left on your mortgage, you can request insurance for that amount alone, but there's no guaranteed replacement on the home and they will envoke and co-insurance pentalty. I don't know why you wouldn't want to insurance your house to full value. It's best to call your company and ask for options. Try a higher deductible if the premium is too high for you :)

Answer 4

If you live in the state of Florida the insurance companies can increase without your OK and cancel you for no reason. If someone wants to sell their house they will run into a real problem because of the insurance rates right now. The insurance companies are rich and getting richer while people are losing their homes because of this. I personally don't own a home but my daughter has been trying to sell her house for 4 months now and dropped the price twice and still no takers..in Feb, if the house isn't sold she has to start paying vacant house insurance that cost 3x the amount of regular insurance. My sister and her husband's house insurance jumped $4000 and they have only had one claim in 30 yrs. Its real bad.

Answer 5

You should be glad that they have done this for you. You should have your property insured for its full value.

The $125,000 is what the insurance will pay the bank in the event that something happen. With the change the insurance will still pay the bank and the balance shall be paid to you. This $180,000 would let you rebuild the house without having to start over again.

I know the payments are hard to take, but the cost of rent is worse.

Answer 6

Yes, especially if your policy is "replacement value" since the cost to replace your home has gone up along with both the overall housing market and the cost of raw materials/labor to rebuild. Don't forget your assets in the house (i.e. furniture, clothing valuebles - these have value in your policy as well)

Yes, you may owe only $125K on the house, but what would happen if your home was destroyed (by a covered loss)? Would you only want to pay off the mortgage? I think not, I would guess that you would want to rebuild and re-stock furniture/belongings.

Since your 'real-esate' value is so far above your insured value, you may actually be under insured!

Answer 7

Yes, they can. If they inspect your property and find you are under insured they have the right to increase your limit to the true replacement cost of the building.

Also, many companies build in an inflation guard. So, when you renew you will see a higher premium, but this is because the coverage has increased, as well.

btw, there is little correlation between market value and replacement cost.

Answer 8

It is called inflation guard. They increase the coverage of your dwelling every year to keep up with rising labor and materials cost. It has nothing to do with claims or credit.

Also insurance is used to rebuild your home from the ground up, to indemnify you in case of a loss. It will not pay off your mortgage, nor does have to be anywhere close to what the market value of the home is.

Answer 9

Mbrcatz17 is so right! HO-3 polices aren't to pay off your mortgage, but to rebuild your home and this is why companies increase the coverage. Sometimes, however, it can be increased way too much and it can be negotiated. This is why you need an agent. CALL YOUR AGENT!

Answer 10

Yes, it can be done.