So I switched HO insurances this year and when signing up, I just used the same coverages as my previous policy. So for instance, lets say my dwelling protection was $300k.

I then received a letter saying that an estimator has established a "replacement cost" of a lesser amount, say $260k. The insurance company is saying I can lower my dwelling protection and save some money on my premium.

Here's my dilemma: I currently owe right around the $300k for my house. If I were to lose everything, would the replacement cost of $260k be the max they would give me? In that case, I may as well lower my protection add thus my premium. Or do I have the option to stay at the $300k (thus at least covering my note) and that would be my replacement cost/claim in the event of a disaster?

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Posted by krange1

Destrehan, LA

Member since Mar 2012

171 posts

Posted on 1/29/14 at 12:43 pm to Htown Tiger

Replacement Cost is the estimate of an insurance company's max payout. They would not pay you an extra 40k if they can rebuild your home for 260k. Insurance makes who whole again. It does not exist to help people profit.

In regards to your mortgage, you are forgetting the cost of land that was purchased along with the home. It's natural for the note to be somewhat higher than the actual replacement cost of a home.

I would save the money on the premium if I were in your shoes. I'm sure you could leave it, but you'd just be paying extra.

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Posted by Mr.Perfect

Louisiana

Member since Mar 2013

17438 posts

Posted on 1/29/14 at 12:46 pm to Htown Tiger

correct. and you only need to be 80% to value generally. to prevent a co insurance penalty

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Posted by Htown Tiger

Houston

Member since Sep 2005

2312 posts

Posted on 1/29/14 at 12:59 pm to krange1

quote:
krange1

quote:
Mr. Perfect

Thanks. This helps. May as well lower the premium.

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Posted by wickowick

Head of Island

Member since Dec 2006

45806 posts

Posted on 1/29/14 at 2:24 pm to Htown Tiger

How much would you save by lowering the coverage? I bet it isn't much...

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Posted by agdoctor

Louisiana

Member since Dec 2004

3142 posts

Posted on 1/29/14 at 4:07 pm to krange1

quote:
you are forgetting the cost of land

and if you read closely the slab isnt covered either. That value will be subtracted from the total payout. They expect you to build the same jouse in the same place.

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Posted by Slickback

Deer Stand

Member since Mar 2008

27681 posts

Posted on 1/29/14 at 8:03 pm to Htown Tiger

If you do reduce it You'll likely soon get a letter from you're mortgage company requiring your Covg A (dwelling) to meet or exceed the value of your loan.

90% of policies have some form of guaranteed replacement value endorsement - whether it be Extended Dwelling, Dwelling Extension - or some other similar endorsement that adds 20% to your replacement cost (inflation and catastrophe protection).

Also if you have a total loss, you have the option to get a check equalling your dwelling, personal property, and other structures coverage (which should be WAY over your loan value).

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