Monday, January 19, 2009

Don't Overinsure for Your Home

Keep in mind that when you purchase full value replacement cost insurance, your premium is based on the insurance company's appraisal of the value of your house. If you think that their appraisal is too high, you can dispute that. For example, if you purchase a home for $200,000, the insurance company is going to want to sell you $200,000 in homeowner's insurance. The reality is that you've really paid for the house and the property that the house sits on. If the house came along with two acres of property, then you may have actually paid $125,000 for the house and $75,000 for the property. In that case, your house may only cost $125,000 to rebuild and you should only have to pay for a $125,000 replacement cost policy.

If you think you are being asked to pay for more coverage than is necessary to replace your home, check the terms of your mortgage before attempting to dispute it banks usually require a minimum amount of coverage. If you still believe less insurance will be adequate, point this out to the bank and get it confirmed by an appraiser for the insurance company writing the policy. You have reality on your side. That's because the insurance company will not insure your home for more than it would cost to replace. So get the insurance company to provide the appraisal. If you still are not satisfied, ask two more appraisers to value your home. Ultimately, it is not you or the bank who decides the value of your home. It is an appraiser.

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