My husband and I have a loan but my insurance company wants us to insure the house for more than the loan. Why?
Free Insurance Quote Comparison
Secured with SHA-256 Encryption
UPDATED: Jul 16, 2021
It’s all about you. We want to help you make the right legal decisions.
We strive to help you make confident insurance and legal decisions. Finding trusted and reliable insurance quotes and legal advice should be easy. This doesn’t influence our content. Our opinions are our own.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.
Insurance companies insure your home based on the replacement cost of the home, while your loan is based on the retail value of the property. Sometimes the replacement cost is well below the real estate value but in some areas of the country the cost to rebuild is actually higher than the purchase or loan value of the property. You and your husband should ask your insurance agent how they arrived at the replacement value of your house. If you think it is out of line you can check with other insurance companies to see if you can get a lower amount of insurance, or you can speak with a contractor who may be able to assist you in getting lower insurance. (Contractors can give a cost per square foot that may be lower than the one being used by the insurance company. It is an option, but not a very popular one in the insurance industry.) However, you need to be careful that you are not underinsuring your home. If the house is a total loss due to a covered peril you want to be sure you have enough insurance to rebuild. Many insurance companies provide a cushion, known most commonly as extended replacement cost, which is a percentage of the amount of insurance that can be used in the event your insurance is low. This percentage can range from 15% up to100% of the amount of insurance.