I had a client recently close on their new home at Mueller and they had a conceptual battle with their lender – USAA. It was concerning their home-insurance, also provided by USAA.
The lender was arguing that the insurance coverage was not enough and my client was concerned as the insurance value was less than the loan and less than the price of the home. I asked local insurance expert James Snyder for his take on it, while we were kickboxing. This is my synopsis.
The lender wants the insurance to cover their loan in the event of a catastrophe (fire, asteroid impact, hurricane etc). The insurance company wants to cover the replacement cost of the building, which they calculate based on average construction costs for your area. The insurance company does not generally cover replacement cost for the lot, as their argument is that the lot is (relatively) indestructible, and hence does not need coverage.
So you end up with several different values: the cost of the home (including lot), the replacement cost of the structure, and the value of the loan.
What can you do if the lender won’t accept the coverage provided by your insurance company? Well if you called James this probably wouldn’t ever surface – his number is 512.814.7132. This is how he describes it:
“Should the lender ever fight (maybe question is a better is a word) an insurance company (more specifically me or an insurance agent) on the insured amount of a home here is what I as the insurance agent would say.