Posted: 11/10/2015 6:42:26 PM EDT
|
Please tell me if there is a hole in my logic here:
I got my homeowners policy renewal in the mail and the coverage had been automatically increased. I emailed my agent telling her to put my coverage back at the original amount. She told me that she cannot reduce the coverage as my policy automatically increases. I haven't had this happen before. This seems rather backwards to me - I should be able to buy the coverage that I want as long as it satisfies the lender. She said they do it as a courtesy to their customer since construction costs increase. While that is true, the policy covers the entire value of my home, both land and improvements. If the house was ever totaled and it cost me the entire purchase price to rebuild it, I wouldn't rebuild it. I would take the insurance proceeds, pay off the remainder of my loan, and sell the lot. So I don't see a point in increasing the coverage every year. I'm thinking about cancelling the policy and going to another company. Is this standard practice? Ive only had policies from three different companies and haven't run into this before. |
| Yeah, i think she is feeding me a load of shit. I was just transferred to a new agent and then this happens. I just wanted to check with the arf insurance experts to see if it is standard practice now to mandate increasing coverage every year before i tell her to cancel the policy. |
|
It's generally a part of your guarantied replacement.
The company guaranties to replace your home up to the policy limit + a blanket % above that, 20-25%. To do that they link the dwelling to an inflation guard. Usually you can opt out of that extended portion and that will stop the % increases every year. |
|
Quoted:
Yeah, i think she is feeding me a load of shit. I was just transferred to a new agent and then this happens. I just wanted to check with the arf insurance experts to see if it is standard practice now to mandate increasing coverage every year before i tell her to cancel the policy. Depending on your policy type this is very standard. It is sometimes called inflation guard. Usually somewhere around 2% increase in replacement value. Sometimes more, sometimes less. You can mention to your new agent that you don't want any automatic increase in value, keep in mind some policies require you to keep your coverage at a minimum percentage of value called coinsurance meaning you need to have your home insured for at least 90% of its actual value. I'd have to read your policy to tell you either way. If you want to you can send it to me with your personal info redacted and I can check it out for you. <------ Works for insurance brokerage 
|
|
Quoted:
i understand what you guys are saying and it makes sense. I just think that is more coverage than I need. I only have 20% equity in the house, which is less than the land value so it doesn't make sense for me to pay for extra insurance. Your equity has nothing to do with your home insurance nor does you land value. It's home insurance not land or equity insurance. It should be enough to rebuild your home if worse case it burns to the ground. In a perfect world it would be exact in the value, but regional costs market swings and inflation can effect that value. 
|
|
Quoted:
Your equity has nothing to do with your home insurance nor does you land value. It's home insurance not land or equity insurance. It should be enough to rebuild your home if worse case it burns to the ground. In a perfect world it would be exact in the value, but regional costs market swings and inflation can effect that value. Quoted:
Quoted:
i understand what you guys are saying and it makes sense. I just think that is more coverage than I need. I only have 20% equity in the house, which is less than the land value so it doesn't make sense for me to pay for extra insurance. Your equity has nothing to do with your home insurance nor does you land value. It's home insurance not land or equity insurance. It should be enough to rebuild your home if worse case it burns to the ground. In a perfect world it would be exact in the value, but regional costs market swings and inflation can effect that value. Actually it has a lot to do with it. Especially when you have a loan on the property. I don't feel like typing up the math and explanation behind it right now but you can see the general concept in my first post. Eta: to clarify, your equity, ltc and land value have a lot to do with the amount Of coverage you need. |
|
Quoted:
Actually it has a lot to do with it. Especially when you have a loan on the property. I don't feel like typing up the math and explanation behind it right now but you can see the general concept in my first post. Eta: to clarify, your equity, ltc and land value have a lot to do with the amount Of coverage you need. Quoted:
Quoted:
Quoted:
i understand what you guys are saying and it makes sense. I just think that is more coverage than I need. I only have 20% equity in the house, which is less than the land value so it doesn't make sense for me to pay for extra insurance. Your equity has nothing to do with your home insurance nor does you land value. It's home insurance not land or equity insurance. It should be enough to rebuild your home if worse case it burns to the ground. In a perfect world it would be exact in the value, but regional costs market swings and inflation can effect that value. Actually it has a lot to do with it. Especially when you have a loan on the property. I don't feel like typing up the math and explanation behind it right now but you can see the general concept in my first post. Eta: to clarify, your equity, ltc and land value have a lot to do with the amount Of coverage you need. It is replacement cost not actual cash value. This takes into account demolition, permits, etc. This increases every year. The cost to rebuild a house basically never goes down. |
| Shop around. You'll get quotes for ACV policies vs replacement policies and quotes for open peril policies vs listed peril policies. You'll likely never be told which type you're being quoted and not knowing the differences, you'll find some huge savings to be had without realizing it's because you bought a much worse policy that still satisfies the lender. If you have a policy from say State Farm or Liberty Mutual, you should be able to beat them anywhere since they are offering better coverage for the big name companies. You can also find those companies that will save you all that money IF you bring over your autos too (which are much more profitable than a home policy in lots of areas of the country). And depending on which company you leave to go there, your auto coverage could go up or down as well (and I'm not talking about premium). The standards of auto repairs varies all over the place. |
| The wonders of home ownership. The insurance company requires that you have a separate as-hole where they can screw you at will, any time, the other ass-hole is for the Government to increase your property taxes. The policy will increase every year, you have no choice, if you have a mortgage, make sure you don't loose your coverage, they will get you cover at a very high price, just try it one time, you'll see what I mean. |
|
Your policy is based on rebuild value, which is based on material costs and labor for your region/zip code and construction type. It is NOT linked to market value. Example: Outside Boston, I was at a three story house, early 20th century, nice slate roof. Rebuild value on that behemoth was like $800k, but because of the shitty neighborhood, owner couldn't get $300k in the open market. But, if the bitch burned to the ground, his company would do a valuation on it and pay to rebuild all $800k of it, new as can be... even if it wasn't worth that much on the market. Something people do when they don't understand that is beg their agent for a lower cost. Suddenly they find themselves with a high deductible, named peril, ACV policy... and when something happens and they aren't covered or get a depreciated payout, they piss and moan about how the insurance company sucks. No... they suck, not the company. Your insurance company has an army of number crunchers that tally up how much rates should be in a given area while still being competitive. There is a logic to the madness. The opposite can be true in places like San Francisco where rebuild value is $300k but market value is $2 million.
There are some exceptions. For my condo policy, I just said, "Cover me for $50k and call it a day." No questions. They know I'm overinsured, and we don't care. I'll only get paid on what I contractually owe in a total loss. There are some long shot situations where that extra can help, but that's a long story. |
|
Quoted:
Actually it has a lot to do with it. Especially when you have a loan on the property. I don't feel like typing up the math and explanation behind it right now but you can see the general concept in my first post. Eta: to clarify, your equity, ltc and land value have a lot to do with the amount Of coverage you need. Quoted:
Quoted:
Quoted:
i understand what you guys are saying and it makes sense. I just think that is more coverage than I need. I only have 20% equity in the house, which is less than the land value so it doesn't make sense for me to pay for extra insurance. Your equity has nothing to do with your home insurance nor does you land value. It's home insurance not land or equity insurance. It should be enough to rebuild your home if worse case it burns to the ground. In a perfect world it would be exact in the value, but regional costs market swings and inflation can effect that value. Actually it has a lot to do with it. Especially when you have a loan on the property. I don't feel like typing up the math and explanation behind it right now but you can see the general concept in my first post. Eta: to clarify, your equity, ltc and land value have a lot to do with the amount Of coverage you need. Actually, it doesn't. You are insuring the home, not the land or your equity. The insurance company is saying "if the home burnt to the ground today, what would it cost to rebuild it?" That price never goes down, rarely stays the same...Building materials are just like everything else. Also what your home is "worth" is irrelevant, again, since the company is looking at what it would cost to rebuild. Homeowners insurance is indemnity protection. To "indemnify" literally translates to "make whole." If there was no inflation protection on your policy, in a few short years you would no longer be "made whole" if something happened. That matters to you, and whoever you have your mortgage with. They want to be sure you have sufficient coverage also.... Source: Former state farm agent. |
|
Quoted:
Please tell me if there is a hole in my logic here: I got my homeowners policy renewal in the mail and the coverage had been automatically increased. I emailed my agent telling her to put my coverage back at the original amount. She told me that she cannot reduce the coverage as my policy automatically increases. I haven't had this happen before. This seems rather backwards to me - I should be able to buy the coverage that I want as long as it satisfies the lender. She said they do it as a courtesy to their customer since construction costs increase. While that is true, the policy covers the entire value of my home, both land and improvements. If the house was ever totaled and it cost me the entire purchase price to rebuild it, I wouldn't rebuild it. I would take the insurance proceeds, pay off the remainder of my loan, and sell the lot. So I don't see a point in increasing the coverage every year. I'm thinking about cancelling the policy and going to another company. Is this standard practice? Ive only had policies from three different companies and haven't run into this before. Insurance varies so much from state to state that I wouldn't ever be able to say what goes on in your state, but I don't think insurance works that way. If it did, people would set their house on fire and move somewhere else. The insurance will rebuild your home, not give you a settlement. At least in VA, and from the way I understand it. |
|
Quoted:
Shop around. You'll get quotes for ACV policies vs replacement policies and quotes for open peril policies vs listed peril policies. You'll likely never be told which type you're being quoted and not knowing the differences, you'll find some huge savings to be had without realizing it's because you bought a much worse policy that still satisfies the lender. If you have a policy from say State Farm or Liberty Mutual, you should be able to beat them anywhere since they are offering better coverage for the big name companies. You can also find those companies that will save you all that money IF you bring over your autos too (which are much more profitable than a home policy in lots of areas of the country). And depending on which company you leave to go there, your auto coverage could go up or down as well (and I'm not talking about premium). The standards of auto repairs varies all over the place. Thank you for this explanation. This makes a lot more sense. I'm used to dealing with insurance on my commercial properties which are ACV policies. |
|
Quoted:
Insurance varies so much from state to state that I wouldn't ever be able to say what goes on in your state, but I don't think insurance works that way. If it did, people would set their house on fire and move somewhere else. The insurance will rebuild your home, not give you a settlement. At least in VA, and from the way I understand it. Quoted:
Quoted:
Please tell me if there is a hole in my logic here: I got my homeowners policy renewal in the mail and the coverage had been automatically increased. I emailed my agent telling her to put my coverage back at the original amount. She told me that she cannot reduce the coverage as my policy automatically increases. I haven't had this happen before. This seems rather backwards to me - I should be able to buy the coverage that I want as long as it satisfies the lender. She said they do it as a courtesy to their customer since construction costs increase. While that is true, the policy covers the entire value of my home, both land and improvements. If the house was ever totaled and it cost me the entire purchase price to rebuild it, I wouldn't rebuild it. I would take the insurance proceeds, pay off the remainder of my loan, and sell the lot. So I don't see a point in increasing the coverage every year. I'm thinking about cancelling the policy and going to another company. Is this standard practice? Ive only had policies from three different companies and haven't run into this before. Insurance varies so much from state to state that I wouldn't ever be able to say what goes on in your state, but I don't think insurance works that way. If it did, people would set their house on fire and move somewhere else. The insurance will rebuild your home, not give you a settlement. At least in VA, and from the way I understand it. I had a commercial property in napa that was damaged by the earthquake last year. I negotiated a settlement with my insurance company, they gave me a check and they went on their way. It did not make sense to fix the property so it is being torn down as we speak. So there may be a difference between residential and commercial, which i need to research, but i know that they can cut you a check and walk away. |
|
Quoted:
Actually, it doesn't. You are insuring the home, not the land or your equity. The insurance company is saying "if the home burnt to the ground today, what would it cost to rebuild it?" That price never goes down, rarely stays the same...Building materials are just like everything else. Also what your home is "worth" is irrelevant, again, since the company is looking at what it would cost to rebuild. Homeowners insurance is indemnity protection. To "indemnify" literally translates to "make whole." If there was no inflation protection on your policy, in a few short years you would no longer be "made whole" if something happened. That matters to you, and whoever you have your mortgage with. They want to be sure you have sufficient coverage also.... Source: Former state farm agent. Quoted:
Quoted:
Quoted:
Quoted:
i understand what you guys are saying and it makes sense. I just think that is more coverage than I need. I only have 20% equity in the house, which is less than the land value so it doesn't make sense for me to pay for extra insurance. Your equity has nothing to do with your home insurance nor does you land value. It's home insurance not land or equity insurance. It should be enough to rebuild your home if worse case it burns to the ground. In a perfect world it would be exact in the value, but regional costs market swings and inflation can effect that value. Actually it has a lot to do with it. Especially when you have a loan on the property. I don't feel like typing up the math and explanation behind it right now but you can see the general concept in my first post. Eta: to clarify, your equity, ltc and land value have a lot to do with the amount Of coverage you need. Actually, it doesn't. You are insuring the home, not the land or your equity. The insurance company is saying "if the home burnt to the ground today, what would it cost to rebuild it?" That price never goes down, rarely stays the same...Building materials are just like everything else. Also what your home is "worth" is irrelevant, again, since the company is looking at what it would cost to rebuild. Homeowners insurance is indemnity protection. To "indemnify" literally translates to "make whole." If there was no inflation protection on your policy, in a few short years you would no longer be "made whole" if something happened. That matters to you, and whoever you have your mortgage with. They want to be sure you have sufficient coverage also.... Source: Former state farm agent. I don't think you are understanding what i am saying, or may be im doing a bad job of explaining it. Im not talking about what an insurance policy is insuring - I know it covers the property regardless of how it is capitalized. I'm talking to a whole different point - the proper amount of coverage to carry when taking into account the amount of equity in the property, the loan balance, the value of the property as a whole, and the value of the land. |
|
Quoted: You are the first person I know who doesn't want to cover the cost of their entire home and its contents in the event of a loss. OP needs to rewrite his policy to eliminate the replacement clause, and insure his home for the purchase price minus the land value minus his equity. That way he can save money on insurance, and go broke when his house burns down. |
|
Quoted:
OP needs to rewrite his policy to eliminate the replacement clause, and insure his home for the purchase price minus the land value minus his equity. That way he can save money on insurance, and go broke when his house burns down. Quoted:
Quoted:
You are the first person I know who doesn't want to cover the cost of their entire home and its contents in the event of a loss. OP needs to rewrite his policy to eliminate the replacement clause, and insure his home for the purchase price minus the land value minus his equity. That way he can save money on insurance, and go broke when his house burns down. LOL, that's pretty far off from what i'm saying. Oh well. |
|
Quoted:
just quit paying it, and let the lender force place it. nothing will go wrong, and you will have the minimum amount of coverage to satisfy the lender.  One of our members here did just that and his home burnt. There is little no loss of use coverage or coverage for all his possessions. He's screwed. The bank's house will get rebuilt but that's about it. 
|
|
Quoted:
I don't think you are understanding what i am saying, or may be im doing a bad job of explaining it. Im not talking about what an insurance policy is insuring - I know it covers the property regardless of how it is capitalized. I'm talking to a whole different point - the proper amount of coverage to carry when taking into account the amount of equity in the property, the loan balance, the value of the property as a whole, and the value of the land. Quoted:
Quoted:
Quoted:
Actually it has a lot to do with it. Especially when you have a loan on the property. I don't feel like typing up the math and explanation behind it right now but you can see the general concept in my first post. Eta: to clarify, your equity, ltc and land value have a lot to do with the amount Of coverage you need. Actually, it doesn't. You are insuring the home, not the land or your equity. The insurance company is saying "if the home burnt to the ground today, what would it cost to rebuild it?" That price never goes down, rarely stays the same...Building materials are just like everything else. Also what your home is "worth" is irrelevant, again, since the company is looking at what it would cost to rebuild. Homeowners insurance is indemnity protection. To "indemnify" literally translates to "make whole." If there was no inflation protection on your policy, in a few short years you would no longer be "made whole" if something happened. That matters to you, and whoever you have your mortgage with. They want to be sure you have sufficient coverage also.... Source: Former state farm agent. I don't think you are understanding what i am saying, or may be im doing a bad job of explaining it. Im not talking about what an insurance policy is insuring - I know it covers the property regardless of how it is capitalized. I'm talking to a whole different point - the proper amount of coverage to carry when taking into account the amount of equity in the property, the loan balance, the value of the property as a whole, and the value of the land. You see the part in red? That has nothing to do with the amount of coverage you should carry unless this is what you are going for: Quoted:
Quoted:
You are the first person I know who doesn't want to cover the cost of their entire home and its contents in the event of a loss. OP needs to rewrite his policy to eliminate the replacement clause, and insure his home for the purchase price minus the land value minus his equity. That way he can save money on insurance, and go broke when his house burns down. |