Requirements for Homeowner’s Insurance
Homeowner’s insurance is not exactly everyone’s favorite topic, but it is an important part of owning a home. Your house is often your biggest asset, and you need to make sure you have enough insurance coverage in case disaster strikes. Here are the requirements for homeowner’s insurance that we must comply with.
Minimum Requirements for Homeowner’s Insurance
If you have a mortgage, your lender will have minimum requirements for homeowner’s insurance. There are minimum coverage amounts, and also maximum deductible amounts.
The minimum coverage amount is 100% of the building’s replacement value. If your insurance company establishes the replacement value, you will need that much insurance coverage. However, if your insurance company does not establish the replacement value, there are a few options to establish the required insurance coverage:
- We can use the “Total Estimate of Cost – New” from the appraisal.
- If the “Total Estimate of Cost – New” is not shown on the appraisal, we can use the “Appraised Value” minus the land/site value.
- Should the insurance policy indicate there is “guaranteed replacement”, the policy is acceptable.
- If there is a “replacement cost endorsement” that includes coverage of at least the replacement cost (based on information found in the appraisal), the policy is acceptable. This endorsement is usually for 120% or 125% of the basic policy coverage, and we can use the higher amount of coverage to determine whether you have sufficient insurance.
Other Requirements for Homeowner’s Insurance
There are also rules for maximum deductible amounts. For most loans, the most the deductible can be is $1,000 or 1% of the dwelling coverage, whichever is greater. This standard deductible amount applies to all types of loss (theft, fire, wind, etc.).
If you are buying a condo or a townhouse, and the Home Owner’s Association has a master insurance policy that only covers the building structure, you will need to get insurance coverage for your personal contents and the building improvements (carpet, appliances, window coverings, etc.).
If you are purchasing a house, you must prepay the insurance for one year. This is collected at the closing. The lender wants to make sure you really have insurance coverage, and the way they do that is to require you to prepay it before you get the keys to the house. If you are refinancing, you do not necessarily need to have a full year of coverage pre-paid.
Is homeowner’s insurance boring? You bet it is! However, requirements for homeowner’s insurance are necessary. Part of our job is to make sure you have enough coverage.
Have any other questions? Contact us today!