Property Homeowners Insurance Is Required By Lenders

This Article Is About Property Homeowners Insurance 

Property Homeowners Insurance is mandatory on all homes that are mortgaged with lenders. Lenders require homeowners insurance in the event the property gets damaged due to fire and/or other hazards. The home is the lender’s collateral and needs to be insured.

  • Lenders require property homeowners insurance
  • This is because in the event of a fire or other disaster, their collateral, which is the borrower’s home, is protected
  • When a homeowner insures their home, they are insuring the home for the total amount that it would cost to replace the damaged part of their home in the event if the property was destroyed due to fire
  • Homeowners who do not have proper coverage, the homeowner’s insurance company will only replace part of the damaged value
  • There is minimum coverage the lender requires
  • However, having higher coverage is optional and up to the homeowner
  • It is highly recommended homeowners have ample insurance coverage in the event of fire and/or other disaster

Insuring Home With Property Homeowners Insurance

Replacement Cost Of Property:

  • Property Homeowners Insurance that pays the policyholder the cost of replacing the damaged property without deduction for depreciation is referred to as replacement cost insurance
  • Property replacement cost insurance is limited to a maximum dollar amount
  • Homeowners should carefully study and review their homeowners policy
  • Homeowners should make sure they have enough coverage in the event a claim needs to be made
  • Lenders will only require the minimum coverage which may not be enough to protect your assets

Guaranteed Replacement Cost:

  • Homeowners Insurance that pays the full cost of replacing damaged property, without a deduction for depreciation and without a dollar limit
  • This coverage is not available in all states and some companies limit the coverage to 120 percent of the cost of rebuilding your home
  • This gives you protection against such things as a sudden increase in construction costs due to a shortage of building materials

Actual Cash Value: 

  • Property Homeowners Insurance under which the insurance policyholder receives an amount equal to the replacement value of the damaged property minus an allowance for depreciation
  • Unless a homeowner’s policy specifies that property is covered for its replacement value, the coverage is for actual cash value

For a quick estimate of the amount to rebuild your home, multiply the local building costs per square foot by the total square footage of your house. To find out the building rates in your area, consult your local builders’ association or real estate appraiser.

Factors Determining Cost Of Rebuilding Home

What are the factors determining the cost of remodeling a home?

There are factors that determine costs of insurance:

  • Local construction costs
  • The square footage of the structure
  • The type of exterior wall construction: frame, masonry (brick or stone) or veneer
  • The style of the house (ranch, colonial)
  • The number of bathrooms and other rooms
  • The type of roof
  • Attached garages, fireplaces, exterior trim and other special features like arched windows

Also, be sure to check the value of your homeowners’ insurance policy against rising local building costs each year. Ask your homeowners’ insurance agent or company representative about adding an “Inflation Guard Clause” to your homeowners policy. This automatically adjusts the dwelling limit when you renew your policy to reflect current construction costs in your area. Also, be sure to increase the limit of your homeowners policy if you make improvements or additions to your house. You can pick any insurance company of your choice. Shop at different insurance companies and see if you can get the best comprehensive coverage for the lowest premium. Many insurance companies offer multi-policy discounts if you have a master policy. Master insurance packages is when you have autos and other insurance policy with your homeowners insurance policy.

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