How Much Insurance Does My Mortage Company Require Me to Have?

May 6, 2009 at 10:26 pm · Filed under First Time Home Buyers, For Home Buyers

Or for that matter how much insurance should I carry on my home?

We recently had 1st time home buyers who elected to get a number of quotes for their home owner’s insurance. A simple fact finding / comparison cost mission turned into a big brouhaha. This is what they were told:

1. Insure for the cost to rebuild with an rider for inflation
2. Insure for the purchase price
3. Insure for the amount of the mortgage

Actually this is unbelievable since only one of the three is correct and #1 and #2 were quotes from insurance agents and #3 was the opinion of the mortgage broker.

Drum Roll Please:

The correct answer is #1…insure your home for at least 100% of its estimated replacement cost (and you know it was our referral).

Replacement cost is NOT:

The market value of the home.
The home’s purchase price or the cost of the land.
The outstanding amount of any mortgage loan.

When buying a new home, be sure to obtain a replacement cost estimate. The easiest way to do this is have the appraiser give you the cost. Or you can check with a knowledgeable insurance agent to help you.

Just so you don’t loose sleep wondering what the difference is; in the example scenario the replacement cost was $175,000, the purchase price was $350,000, the mortgage amount $332,500. If our clients had insured for anything other than replacement cost the policy would have cost them a lot more. Hey you don’t think that the insurance company is going to build you a $350,000 home when that $175,000 home burns to the ground, do you?

Requisite Disclaimer: I am not an expert in underwriting insurance and this should not be construed as advice. As with any question should you seek advice please consult a professional in the field.

Need a quick and very competitive insurance quote?

Call Nick (215) 327-0997 (I’m not allowed to say the name of the company but it’s one of the major ones).

FIND A PHILLY HOME WORTH INSURING

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