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Started By
Message
Homeowners insurance 80% rule
Posted on 9/15/22 at 6:08 pm
Posted on 9/15/22 at 6:08 pm
I’ve heard in the past about the how claims on homeowners insurance can be reduced if you don’t maintain a certain amount of coverage relative to the replacement cost of your home. I am scrutinizing my coverage limits as my homeowners policy is coming up for renewal. I’ve been reading in detail about the “80% rule” to where you must keep coverage of at least 80% of the replacement cost of your home for full claim payouts.
Can anyone reasonably explain why this rule was ever enacted? It seems like complete bullshite to me. If my home would cost say a million bucks to replace, but I only want to purchase $500K of coverage, what difference does that make to the insurer? If there is legitimately $500K of damage to the structure, how can they justify paying less than that for coverage that I legitimately paid for? That is completely my business and not the insurers if I have the means to cover the difference if there is a total loss. Or maybe I wouldn’t even want to replace the structure if there was a total loss.
Can anyone reasonably explain why this rule was ever enacted? It seems like complete bullshite to me. If my home would cost say a million bucks to replace, but I only want to purchase $500K of coverage, what difference does that make to the insurer? If there is legitimately $500K of damage to the structure, how can they justify paying less than that for coverage that I legitimately paid for? That is completely my business and not the insurers if I have the means to cover the difference if there is a total loss. Or maybe I wouldn’t even want to replace the structure if there was a total loss.
9
Posted on 9/15/22 at 8:04 pm to Brightside Bengal
quote:
If my home would cost say a million bucks to replace, but I only want to purchase $500K of coverage, what difference does that make to the insurer?
For one if you have a mortgage your lender would never let this happen.
Secondly I’m sure it has to do with someone sued their insurance company at some point and they all said we have a fix for that.
quote:
Or maybe I wouldn’t even want to replace the structure if there was a total loss.
In most instances the insurance company can decide to replace the former structure on the existing homesite.
Also your home includes a lot or land which is not insured that is included in the total value of your home.
This post was edited on 9/15/22 at 8:10 pm
Posted on 9/15/22 at 8:28 pm to Brightside Bengal
quote:Because if you only want to insure the half of the replacement value of the house, then you are essentially self-insuring for the other half. The insurance company pays their 50% share of the loss, and since you were self insuring on 50% of the value…you’re responsible for your 50% share of the loss.
my home would cost say a million bucks to replace, but I only want to purchase $500K of coverage, what difference does that make to the insurer? If there is legitimately $500K of damage to the structure, how can they justify paying less than that for coverage that I legitimately paid for?
If you’re insured below 80%, then the insurance company pays their share of the claim proportionate to the percent-to-replacement value it was insured for.
If you want the insurance company to assume the full risk, then you have to insure to full value. If you only want to insure for partial value, then the insurer is only assuming partial risk and only going to pay partial claims
This post was edited on 9/15/22 at 8:30 pm
Posted on 9/15/22 at 8:46 pm to Tiger Prawn
If you want the insurance company to assume the full risk, then you have to insure to full value. If you only want to insure for partial value, then the insurer is only assuming partial risk and only going to pay partial claims
--
I hear complaints that that is not an option.
Posted on 9/15/22 at 8:53 pm to Brightside Bengal
What if they say the half you self insured is the half that got hit?
Posted on 9/15/22 at 8:57 pm to Brightside Bengal
90 percent of all claims are within the lower 50 percent of the value of the home. However, rates are determined by the whole spread, so they cannot collect the actuarial correct premium to pay for those claims that are between $1 and $500,000 on a million dollar home, without collecting the dollars of 80% insured to value. Many companies require 100% insurance to value.
If you don’t like it, pay off your mortgage and self insure and see what happens.
If you don’t like it, pay off your mortgage and self insure and see what happens.
This post was edited on 9/15/22 at 9:05 pm
Posted on 9/15/22 at 9:55 pm to ItzMe1972
quote:Because the option to under-insure is only available on actual cash value policies and most insurers only want to write replacement cost policies.
I hear complaints that that is not an option.
Even pre-Ida, only company I was aware of that wrote ACV only policies was Citizens, besides companies that offered builders risk/renovation policies. You can still get a Citizens ACV policy if you want to under-insure
This post was edited on 9/15/22 at 9:56 pm
Posted on 9/15/22 at 11:14 pm to Brightside Bengal
quote:
why this rule was ever enacted?
Most claims don't come close to the value of the house. Yhe insurance companies don't want to have to pay a claim. and at the same time collecting a lower premium because the homeowner decides to underinsure. That is why. The insurance company wants to maximize the amount of the premium and minimize the amount of the payout.
Posted on 9/16/22 at 8:45 am to Brightside Bengal
quote:
It seems like complete bullshite to me.
You think the payout of your first 500k of your home is the same risk as the payout of the 2nd 500k? You know its not. Thats the only reason you're willing to take this risk. Its completely reasonable on behalf of the insurance companies to have coinsurance rules. Some companies are 100% coinsurance. And some companies have pretty absurd replacement cost estimators and there isn't shite you can do about it. You can roll with it or you can walk elsewhere.
Posted on 9/16/22 at 8:47 am to Tiger Prawn
quote:
Because the option to under-insure is only available on actual cash value policies
i'm pretty sure ACV still have coinsurance clauses on policies. Its cheaper cause payout is acv and not rc. there are agreed value policies which would not have coinsurance clauses but pretty rare.
Posted on 9/16/22 at 8:49 am to Brightside Bengal
USAA makes me insure my house for about $500k - then there is the lot that it sits on - which is probably worth $100k by itself. I find this level of insurance absurd, but that's what they tell me it would cost to rebuild. I think if my house got wiped out, I'd take the money, sell the lot and find something cheaper and smaller.
Posted on 9/16/22 at 9:58 am to cable
quote:
USAA makes me insure my house for about $500k - then there is the lot that it sits on - which is probably worth $100k by itself. I find this level of insurance absurd, but that's what they tell me it would cost to rebuild. I think if my house got wiped out, I'd take the money, sell the lot and find something cheaper and smaller.
That is why insurance pays out initially at ACV amount and then send the rest of the money when you repair/ replace the damage.
Posted on 9/16/22 at 10:21 am to Chad504boy
quote:They do. Never heard of one that didn't. But not too many carriers even offer ACV policies and thats the only types I've ever seen that'll allow under-insuring.
i'm pretty sure ACV still have coinsurance clauses on policies.
Every RCV policy I've seen always requires at least 80% to value....usually 100%
Posted on 9/16/22 at 11:17 am to wickowick
quote:
That is why insurance pays out initially at ACV amount and then send the rest of the money when you repair/ replace the damage.
If his home is wiped out/total loss and he lives in a valued policy state. He would be paid the dwelling policy limits.
Valued policy law is a legal statute that requires insurance companies to pay the full value of a policy to the insured in the event of a total loss. Valued policy law does not consider the actual cash value of the insured property at the time of the loss; instead, the law mandates total payment.
States that do have valued policy laws include Arkansas, California, Florida, Georgia, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, South Carolina, South Dakota, Tennessee, Texas, West Virginia, and Wisconsin.
Posted on 9/16/22 at 12:07 pm to cable
quote:
USAA makes me insure my house for about $500k - then there is the lot that it sits on - which is probably worth $100k by itself. I find this level of insurance absurd, but that's what they tell me it would cost to rebuild. I think if my house got wiped out, I'd take the money, sell the lot and find something cheaper and smaller.
I can give you a little insight on this. I lost my home to a house fire years ago. The entire structure was not destroyed but water intrusion and smoke damage in the least effected areas was still significant. I can assure you it takes more cash to tear down and rebuild than new construction costs. Even though you have the slab and land, you will spend significant amounts on debris removal, permits, engineering, etc. Many policy's have a rider that says if you insure for the full amount we decide on (so the value they establish you need) then you receive an additional 20% coverage should you use up all original coverage.
So for an average 400K home that they insure for 350K that is an additional 70K in coverage. This makes it much easier to find a contractor willing to take on the demolition and reconstruction of the new dwelling. Without that extra coverage, we would not have been able to rebuild the structure with the contractor we wanted.
Posted on 9/16/22 at 1:52 pm to nogoodjr
quote:
then you receive an additional 20% coverage should you use up all original coverage.
very strict stipulations that trigger the increased replacement cost coverage.
Posted on 9/16/22 at 3:02 pm to Chad504boy
quote:
very strict stipulations that trigger the increased replacement cost coverage
Insurance is state specific.
But you are incorrect in Georgia.
Insure to value?
Cost to rebuild over dwelling limit?
Yes to both and expanded dwelling coverage applies.
Posted on 9/16/22 at 3:07 pm to Brightside Bengal
All I know is that my home insurance is outrageous and there isn’t much I can do about it.
Posted on 9/19/22 at 8:26 am to Brightside Bengal
We had a house in our neighborhood go up in flames several years ago. Car caught fire in the garage. This was about a $400k home back around 2005…:so we’re not talking a shack here.
Owner didn’t have enough insurance to rebuild at the going per sq ft rate.
I don’t skimp on limits. HO is relatively cheap and I don’t live in a wind/flood risk area.
Owner didn’t have enough insurance to rebuild at the going per sq ft rate.
I don’t skimp on limits. HO is relatively cheap and I don’t live in a wind/flood risk area.
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