Insuring Families and Businesses in Dallas for over 20 years

Why is my home insured for more then my loan amount?


Why is my home insured for more than my loan amount (or market value)?
Thumann Agency Personal Lines Manager: Jennifer Grigis answers...

First, you’re not insuring your home to pay off your loan, you're insuring your home to rebuild it back to its pre-loss condition. Second, your home is insured at replacement value, which means that is what it will cost to rebuild your home in the event of a loss. This cost includes debris removal, material and labor cost and any demolition that may be needed. Most Insurance carriers calculate this cost based on Marshall & Swift analysis. Marshall & Swift are known as the ‘building people’ and they use costs and labor data in your area to determine the actual cost to rebuild the home to its pre-loss condition.

Another factor that affects the replacement value is that when the cost of materials and labor are being calculated they are not calculated at a "bulk" pricing rate like they are when an entire community/subdivision is being built. It’s important to insure your home this way for a few good reasons.

One of the most important reasons to a homeowner is in the event your home is only insured at $200,000, you have a loss to ¼ of the property and it is actually going to cost the homeowner $40,000 to complete the repairs (including debris removal, demolition, etc) the insurance carrier is only going to pay ¼ of the replacement value ($25,000) to rebuild the home. That will leave the homeowner with $15,000 in out of pocket expenses. Remember you carry insurance to bring you whole again in the event of a loss. I will recommend replacement value every time because to me in the event of a loss like that I don’t want to have to worry about unexpected finances on top of the fact that my family just experienced such a loss.

For more assistance with your insurance needs, contact the Thumann Agency today;
(972) 991 - 9100
Insuring Families and Businesses in Dallas for over 20 years...