Home insurance?

Question

I am not sure how much home insurance coverage I should have for the house I bought 2 years ago. The cost of the house including the land was $96,000. But that includes the price of the land, etc.

I now have to renew the home insurance policy and realized maybe I should reduce the amount of the coverage from $96,000 to around $80,000. The dwelling amount for the insurance has been the price I paid for, $96,000. But if something happens and the house needs to get rebuild, the cost of building should not be as high as $96,000. I currently owe mortgage $70,000.

Do you have any recommendation? I do not know if I can ask the insurance agent to reduce the dwelling coverage. But I am hoping a way to save money on the home insurance.
Could someone give me an advice?

Thank you.

Answer 1

OK, market value has NOTHING to do with INSURED VALUE, 95% of the time. You need to insure your house for the cost to rebuild it.

I have no idea what the area of your house is, but on average, it's $150 to $200 per square foot, cost to rebuild. So if you think $96,000 is too much, that means your house is, what, under 500 square feet. One bedroom, kitchen, living room bathroom, all really small. A single story matchbox.

What you need to do, is call the agent. Have them come out, and calculate replacement cost.

A little industry secret - it might actually SAVE you money, if you INCREASE the dwelling value. More insurance claims happen on lower value houses . . . so most insurance companies have a serious "rate threshhold" - example, if you insure your house for $99,000, it's $400 a year, but if you insure for $110,000, it's $300 a year. That might be the case.

Also, MOST standard insurance companies have a "minimim" level of coverage - they flat out don't want to write insurance on a house valued lower than $90,000, or in some cases, $110,000, because they have more claims.

The BEST way to save on your insurance, is talk to your agent, and raise your deductibles to $1,000. Make sure you're getting all the discounts your entitled to. Maintain the house, and update all the major systems BEFORE any of them are 20 years old (plumbing, electric, heating, roof).

Answer 2

I'm surprised your insurance has stayed at $96,000 for 2 yrs. Costs to rebuild, at least in our area have been averaging at least 6% per year. For a few years it was over 8%. I would contact your agent & ask them to run a costestimator on your house. To do the estimate properly, they will ask you many questions about your home (they should have done this when you purchased your insurance). They will start with the dimensions of your home, how many stories, baths, quality of construction of the baths & kitchen, what is on the walls, floors, what kind of roof you have, what kind of siding, any fireplaces, woodstoves, and a few other questions. I don't know where you are but I didn't know you could build a house for only $96,000 anywhere. I have a small 2 bedroom house & it is insured for just over $200,000 because rebuilding costs here run $140-$150 or more per square foot. Read your policy too because there may be a co-insurance clause which means if you do not insured your home to at least 80% of the actual cost to rebuild, if there is a covered loss, after they apply your deductible, you will have to pay a % of the loss (basically the % you are underinsured). Some of my companies give an incentive of a 25% discount if the home is in good condition and is insured to 100% of estimated replacement value. So, it actually can be cheaper to insure the house properly than to be underinsured. I would also call around. If the agent asks you a lot of questions, they are a BETTER agent because they know everything they need to know up front and can provide you a quote & if you buy the policy, there will be no surprises later. Also, I would consider a higher deductible. Just raising your deductible from $250 to $500 can save you 10% of your premium. It is worth looking into. I'd much rather have a higher deductible than to underinsure my home.

Answer 3

How much you pay for a house has very little to do with how much it should be insured for. Homes should be insured for the amount it would cost to rebuild. You don't count land, and in most cases you don't count the foundation.

The best thing to do is to call your insurance agent and ask them to do a new estimate of the cost to rebuild. They should confirm that they have all of the correct information on your home. Once they come up with a figure you can decide if a change is needed.

In my experience most homes are underinsured, not overinsured - but it's definitely worth checking out.

If the home is overinsured and you want to reduce it, make sure you or your insurance agent calls your mortgage company and discusses it with them. The mortgage company may require documentation to agree to a reduction in coverage. Better to make sure it's approved ahead of time instead of dealing with it after the fact.

Also, since your Personal Property coverage is usually a percentage of the amount of coverage on the dwelling, many people are way underinsured there, too. People almost always WAAAAY underestimate what it would cost to replace their stuff. They don't take into account clothes, dishes, CD's, linens - it really adds up quickly. Get a quote to increase it, just to see. On my policy I think I paid $20 a year for $40000 more coverage. A GREAT deal.

Good luck!

Answer 4

Home insurance - yes , home warranty - the seller should pay for, mortgage insurance will be taken care of through the lender since it is part of your payment. I am not too sure about the 3 insurances you have on your older place though, because I don't know what you are talking about. If you are renting, you should only have rental insurance.

Answer 5

Your absolutely right. The dwelling coverage on your policy will only give enough money to rebuild the home itself. It does not include land or market value. When I quote someone who doesn't know what their dwelling should be (which is most) I refer to their county's assessor office website. Usually, the assessor's office will break down the land and improvement values. Now this value is by no means 100% accurate and I would highly recommend going over that stated value, but it's a great starting point. Just from doing this for awhile, I would suggest a value of $78,000 for a ballpark figure.

Answer 6

You lending institution is the first place you want to go. Check their minumums. If you had your home value appraised recently then that will be your guidline if the lender has no minimums or low minimums. You should also check what the Actual Cash Value (or ACV) is compared to your Replacement Cost. I'd get a quote on it before you say "just lower it". Saving $100 per year may not be worth reducing your coverage by $20,000. Check the rates out as well. Good luck.

Answer 7

Hi
What i feel is, it is better if you consult and ask your mortgage provider. Because the lender generally has a least and meager amount it actually needs, else an extra amount will be added in the payment of your mortgage. If you would like to know about mortgage and also about insurance then quickly make a visit to the links below and i'm sure you will really be benefited by this.

http://www.justmortgage.biz/
http://www.worldwideinsurance.biz/poinsurance.html

Answer 8

The cost to rebuild is not always the value of the property; you need to take into account updates, new building codes, etc. Your insurance agent will give you good advice.

You could lower your cost by raising your deductible.

Answer 9

You shouldn't skimp on homeowners insurance. Each year the cost to rebuild and replace all your stuff increases. You won't save that much by reducing your coverage.

Answer 10

Ask your mortgage provider. The lender usually has a minimum amount it requires, otherwise additional amounts will be added to your mortgage payment.