Like everyone, I'm preparing to get reamed in the next few months with my home insurance renewal. One question going around my head is what is actually required, specifically from a lender perspective?

I would think they probably at a minimum want insurance to cover the remaining loan principal but is there any specific rules here?

I suspect my renewal is once again going to have a material increase in dwelling value because of inflation but I'm considering really challenging that because if we ever had a total loss, we wouldn't re-build as big a house. And I'm not saying, we'd just be smarter with the build or take off a few hundred sq. ft. We'd be atleast 1,000 sq ft smaller if we ever re-built from a total loss. And the current dwelling value on the policy is $200k more than what we paid 3 years ago (which isn't even accounting for the few acres that wouldn't factor into the dwelling value). So I get it's much more expensive to build now, but it does feel like my policy might be getting out of hand.

Anyways, that's why I'm tempted to really challenge insured value but wanted to see if there are any rules limiting what you can do there.

You can challenge insured value. I've done it a few times, for the reasons you mentioned. The insurance companies will increase your insured value (and increase your premium accordingly). They sometimes may also have the "grade" of your house wrong.

I'm with State Farm, and they've adjusted my insured value twice. Once (this was years ago) they just lowered it based on me asking. The value had gotten stupid high, and there was no market reason for it (this was before construction prices went through the roof). The second timed they adjusted the "grade" factor which lowered the cost to replace/insured value. Basically, they had my house classified as custom construction (which it is not) and that affects their estimated cost of replacement.

I suspect how much room you have is dependent on the company your policy is with (and possibly how helpful your company rep/agent is).

Would be tough for an agent to drop it considerably because the company they write with has guidelines.

You SAY you'd build a smaller house, but the agent would be on the hook in a lawsuit if you suddenly decided you were underinsured and took him to court. There's no contract you sign with him agreeing to "downsize" in the event of a total loss.

And most insurance companies go with the 80% rule: The 80% rule dictates that homeowners must have replacement cost coverage worth at least 80% of their home's total replacement cost to receive full coverage from their insurance company.

You will need to have enough insurance to replace the home as is now built. Down sizing with a mortgage is not an option. Own free and clear? do want you want. You gave the home as collateral to the lender and they expect you to replace it in a total loss.

If you have had a recent appraisal you will find the replacement costs at the time in the report. I had my last in 2019 so I could take that amount and add Covid/Supply increases/labor cost increases to that. So 2019 plus 15-20%????

The insurance company has an algorithm to estimate your replacement costs but it has a fudge factor you could negotiate. I did this with Liere several years ago. They had a bottom dollar limit they would not go below but the low end I thought was fair enough. The insurance companies have a bad habit of just arbitrarily increasing replacement costs that can be disputed. Not sure how successful you will be without just shopping the policy for new quotes.

Varies from one company to the next but lowering your dwelling value is a VERY minimal decrease in premium. And while the savings might sound enticing now if you were ever in a position where you had a total loss that $20-40k you cut on your coverage could be devastating to save a few dollars.

A couple places people don't often think about reducing is their contents or other structures coverage. This also varies from one company to the next as to how much you can lower these but generally people are over insured here. Most default limits are a % of your dwelling limit, generally 50% on contents and 10% on other structures.

I just did a change for a customer yesterday lowering her dwelling from $655k to $615k and it saved $85 a year.....not worth it IMO.

Obviously this is just a one off experience, but we're buying a new home and just got insurance for it. The original quote/policy had replacement value at like $300/sq ft. We lowered it to $250/sq ft, which as you mentioned slightly changed the personal property and other structures.

But it lowered our policy $1,400/year.

The Silverback said:

---

Varies from one company to the next but lowering your dwelling value is a VERY minimal decrease in premium. And while the savings might sound enticing now if you were ever in a position where you had a total loss that $20-40k you cut on your coverage could be devastating to save a few dollars.

---

Yeah but it can be a big difference in your deductible, say if you get a roof claim approved.

Correct, however you can also add a 25% dwelling extension to your policy which does not affect your deductible and gives you 25% additional coverage to your dwelling in the event of a total loss if the dwelling is insufficient.

Would hate for someone to be short $30-60k in the event of a total to save a few dollars on annual premium or $300-600 on a deductible.

Another reason to protest the value of your home with insurance is deductible. With roofs, your deductible is often a percentage of the value of your home.

SteveBott said:

---

You will need to have enough insurance to replace the home as is now built. Down sizing with a mortgage is not an option. Own free and clear? do want you want. You gave the home as collateral to the lender and they expect you to replace it in a total loss.

If you have had a recent appraisal you will find the replacement costs at the time in the report. I had my last in 2019 so I could take that amount and add Covid/Supply increases/labor cost increases to that. So 2019 plus 15-20%????

The insurance company has an algorithm to estimate your replacement costs but it has a fudge factor you could negotiate. I did this with Liere several years ago. They had a bottom dollar limit they would not go below but the low end I thought was fair enough. The insurance companies have a bad habit of just arbitrarily increasing replacement costs that can be disputed. Not sure how successful you will be without just shopping the policy for new quotes.

---

Probably 30-40%.

Buying a custom home (2017 build) and one insurance group suggested $200/sqft dwelling and another one $250/sqft

Is only downside if going with $200/sqft is that if a complete loss and need to rebuild we are out the difference between max dwelling $ vs actual cost to rebuild?

yes