Home insurance - over insured

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Wricha
Posts: 461
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Home insurance - over insured

Post by Wricha » Thu Jul 11, 2019 8:54 am

Recently, I bought a second home. I got a very good deal, honest! USAA sent an appraiser out to look at the house. I told the appraiser I only wanted to insure the house for what I have into it. He tried his best and the appraisal come in at 2.5x the price I paid for the house. Hence, good deal maybe. I talked to USAA and they said they could not insure the house for less than it’s appraised value. This seems a bit strange if I am willing to take the risk. I know I am missing something but what. No loan on house.

jebmke
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Re: Home insurance - over insured

Post by jebmke » Thu Jul 11, 2019 9:01 am

Wricha wrote:
Thu Jul 11, 2019 8:54 am
Recently, I bought a second home. I got a very good deal, honest! USAA sent an appraiser out to look at the house. I told the appraiser I only wanted to insure the house for what I have into it. He tried his best and the appraisal come in at 2.5x the price I paid for the house. Hence, good deal maybe. I talked to USAA and they said they could not insure the house for less than it’s appraised value. This seems a bit strange if I am willing to take the risk. I know I am missing something but what. No loan on house.
Our HO insurance with USAA is a replacement cost policy; it may be that that is all they sell. If so, they probably have to assume that the appraisal value is close to the cost to replace the structure. Keep in mind that insurance is regulated by the state so there may be state regs at play here as well.
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TheHouse7
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Re: Home insurance - over insured

Post by TheHouse7 » Thu Jul 11, 2019 9:11 am

This is completely normal, I had just looked into "saving" on my homeowners a $100 a year. The insurance sales person said they can fudge some of the amenities in the house calculator, but the policy is written to replace everything (I think it may be a simplification mandate because of how disasters work.). Controls the insurance company from saying that you only wrecked the 1/2 your property that was not insured. :x
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ResearchMed
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Re: Home insurance - over insured

Post by ResearchMed » Thu Jul 11, 2019 9:32 am

TheHouse7 wrote:
Thu Jul 11, 2019 9:11 am
This is completely normal, I had just looked into "saving" on my homeowners a $100 a year. The insurance sales person said they can fudge some of the amenities in the house calculator, but the policy is written to replace everything (I think it may be a simplification mandate because of how disasters work.). Controls the insurance company from saying that you only wrecked the 1/2 your property that was not insured. :x
I wonder if this is state specific.

The last time I did some reading about this, it seemed that IF one insured for less than full value (that has more than one way of being measured), then IF there was a loss, then you'd only be reimbursed proportionally per loss.
That is, if one was insured for 75% of value, then if the garage burned down, one would be paid 75% of the insured value to repair/rebuild.

In other words, one didn't get to gamble that it wouldn't be a total loss, so one would "at least" get back the first 75% of the insured value.

RM
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cshell2
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Re: Home insurance - over insured

Post by cshell2 » Thu Jul 11, 2019 9:42 am

Remember if something catastrophic happens it costs a lot of money to just clean up the site and remove the old structure before even starting a new one and insurance covers putting you up in a hotel or rental while your house is being rebuilt. So, just covering the value isn't going to make you whole in these cases.

jharkin
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Re: Home insurance - over insured

Post by jharkin » Thu Jul 11, 2019 10:31 am

cshell2 wrote:
Thu Jul 11, 2019 9:42 am
Remember if something catastrophic happens it costs a lot of money to just clean up the site and remove the old structure before even starting a new one and insurance covers putting you up in a hotel or rental while your house is being rebuilt. So, just covering the value isn't going to make you whole in these cases.
+1 At least once a year I see on facebook or elsewhere people setting up GoFundMe's and similar donation campaigns for families that suffered house fires... Or they wrecked their car and only have state minimums and cant afford transportation.

Too many people are underinsured, dont be one of them.

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Cobra Commander
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Re: Home insurance - over insured

Post by Cobra Commander » Thu Jul 11, 2019 10:51 am

I have this situation as well. They want to insure my house for the entire purchase price but I live in a HCOL area and the land is certainly a significant portion of the value of the house. I doubt it would cost more than $500K to rebuild the entire house and they want me to insure it for $800K.

August
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Re: Home insurance - over insured

Post by August » Thu Jul 11, 2019 9:16 pm

As someone else said, if it's a replacement cost policy, the carrier will require you to insure for the full replacement cost. If you have a mortgage, the mortgage may require you to be insured for at least the amount of the mortgage.

In homeowner's claims, they are often not total losses, so the issue that would come up with an underinsured house is say you buy a policy with a $30,000 limit on a $100,000 house and you have a $5,000 loss, does the insurance pay the full $5,000 less the deductible since it's less than the limit or do they only owe for 30% of the repair cost since the house is only insured to 30% of value?

There is a provision on some policies (varies by state and is more common in the Excess and Surplus Line Homeowner policies) called co-insurance where you agree to insure for usually 80% or 90% and if your limits drop below that you can only collect a proportion of the repair cost. I have seen some people use this as a way to underinsure knowing that they would only get a proportion of the repair costs in a loss. You'd need to find an independent agent or broker who can advise you on what might be available in your area.

London
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Re: Home insurance - over insured

Post by London » Fri Jul 12, 2019 5:04 am

I had this problem and Liberty Mutual was willing to work with me when other providers weren’t.

Sconie
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Re: Home insurance - over insured

Post by Sconie » Fri Jul 12, 2019 6:23 am

Just look for a home insurer who will write a policy for "actual cash value" or "market value," not replacement cost.
I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant. - Alan Greenspan

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