Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Sep 14, 2011

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Insurance Question from Salem, OR

Asked on 09/14/2011

Can an insurance company insure the home and not the property? I was told this is possible by a State Farm agent who is researching rates for me. If the value of the house is $74,000 and the land value is $75,000, why insure the land? According to an agent. It would be better to raise the home value to $100,000, to cover the cost of rebuilding in today's market. This would be a substantial savings for the homeowner in mortgage payments. Doesn't the mortgage company require ins. on both the house and the land?

Answer given on September 18, 2011

Insurance companies are insuring for the replacement cost of the property they insure, whether it be a home, office building or the like. They try to determine the replacement based on local building costs and they sometimes use programs to determine replacement cost. However, they do not insure the land. It is specifically excluded under the contract.Mortgages are based on the market value of the property and land. However, they cannot require the purchaser to insure for the value of the total loan, unless the replacement cost of the structure exceeds the market value.Most homeowner insurance companies include an “extended” replacement cost coverage on the policy. This gives from 20%-100% of the insured value to allow for increased costs of replacement. They are only estimating the rebuilding costs, and this gives an extra cushion to the policyholder in the event the estimated replacement cost is low. Many insurance policies also offer additional insurance for building ordinance and law, which provides coverage if the building codes require an upgrade on the rebuilding costs due to code changes. This might include sprinkler systems in the home, double paned windows or a different foundation.


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