Why do underwirters dictate how much insurance I need to carry when I don’t have a mortgage
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UPDATED: Feb 23, 2012
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Insurance Question from Chicago, IL
Asked on 02/23/2012
Why do underwirters dictate how much insurance I need to carry when I don’t have a mortgage I do not have a mortgage on my property but the broker I use tells me that I must carry enough insurance to replace the building in case of total loss. I would never consider rebuilding the property if totally lost. Also, having to insure for an amount dictated by the underwriters, the amount keeps increasing every year as much as 40% as well as the premiums. Can I only insure the property for the amount that I want? Which companies give me that option?
Answer given on March 01, 2012
Very few insurance companies will allow you to underinsure your home. They want to insure it for the full estimated replacement cost of the home. Somewill go as low as 80% of the replacement cost, but they do so reluctantly.The problem stems from the possibility of a partial loss. You say you will not rebuild the home if totally lost. However, if it is damaged by 50% or 60% percent, you will most likely want to repair the home. If the insurance company is not insuring the home for its full replacement value, then they are not getting the appropriate premium for the home. When a partial loss occurs, they may well pay the full policy amount if it were only insured for a lower amount.You may be able to adjust the amount of insurance from what the insurance company wants you to insure it for. If you can get a contractor to write their estimate of the replacement cost that is lower than current amount of insurance, you may be able to get it reduced.You should shop around as there are different insurance companies which use different formulas for the cost to replace a home. You may be able to find a company that will insure the home at a lower amount.
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