Farm Bureau Over Insured home?

NCAgent828

Super Genius
193
I'm quoting a home right now and the highest the insurance company will go is $275,000 on dwelling. the problem is that Farm Bureau has it insured for $433,000. No chance in the universe it would cost $433,000 to replace. If they have a partial or total loss on the property, will they honestly cash in the difference?

Or will Farm Bureau replace or repair the dwelling at the real cost to do so.

Any feedback is appreciated.
 
Additionally, they have an HO-3220 endorsement, apparently this is for inflation guard but my goodness that's a lot of inflation!
 
You'll need to confirm this by reading the Farm Bureau policy, but the standard homeowners policy will pay what it costs to rebuild the home up to the Coverage A limit (plus any additional coverage that applies). If the cost to rebuild is less than the Coverage A limit, then the policy holder will have wasted his money on the difference.

Inflation guard only increases the amount of coverage by a few percentage points.

Your prospect may have insured his home for its purchase price at one time or for its market value. You'll have to ask him.

Meantime, you can google home replacement cost estimator and you'll come up with a few that you can use to justify the $275,000.
 
Thanks for the info AdjusterJack! This is a really good way to explain it. I think when this happens, our clients think that they are getting a deal and will either build a totally different house with the money or cash in. Total misconception that I hope I can communicate effectively.
 
North Carolina's valued policy law:

North Carolina
58-43-10
Applies a modified valued policy statute known as a premium refund law. The carrier is required to refund the premium for the amount of coverage in excess of the replacement cost​

In my state, the face amount of the policy must be paid in the case of a total loss IF the agent never inspected the property. Otherwise, the policy pays the actual replacement cost and the excess premium must be returned at an interest rate of 6%.

The problem is, probably only around 2% of losses are total. That might be higher if it's in a poorly protected area. The bottom line in many states is that there is little downside to overinsuring a building given that so few losses are total.

That being said, M&S/Boeckh claims that overall most homes are underinsured significantly. THAT being said, a home possibly overinsured by almost 60% is quite a discrepancy.
 
North Carolina
58-43-10
Applies a modified valued policy statute known as a premium refund law. The carrier is required to refund the premium for the amount of coverage in excess of the replacement cost

Not exactly. Here's the exact wording of that statute:

58-43-10 - Limit of liability on total loss.
Subject to the provisions of G.S. 58-43-5, when buildings insured against loss by fire and situated within the State are totally destroyed by fire, the company is not liable beyond the actual cash value of the insured property at the time of the loss or damage; and if it appears that the insured has paid a premium on a sum in excess of the actual value, he shall be reimbursed the proportionate excess of premium paid on the difference between the amount named in the policy and the ascertained values, with interest at six per centum (6%) per annum from the date of issue.


Note that the premium refund ONLY apply when there is a total loss due to fire.
 
I have this argument daily with lenders and my carrier. Often my quote works out to over $175 per square foot when the going rate is between 100-125 per square. Lenders want the total of the loan covered by the policy, actuaries come up with numbers from who knows where. If the rebuild divided by the square footage is less than $150 per square you should be fine regardless of the number. Remember, you are not replacing the land and even a total loss rarely replaces the foundation
 
Virginia
VA Code- 6.1-2.6:1. Fire insurance coverage under certain loans not to exceed replacement value of improvements.


A. No lender shall require a borrower, as a condition to receiving or maintaining a loan secured by any mortgage or deed of trust, to provide or purchase property insurance coverage against risks to any improvements on any real property in an amount exceeding the replacement value of the improvements on the real property.

In this section, 'property insurance coverage' means insurance against losses or damages caused by perils that commonly are covered in insurance policies described with terms similar to 'standard fire' or 'standard fire with extended coverage.'

In determining the replacement value of the improvements on any real property, the lender may:

1. Accept the value placed on the improvements by the insurer; or

2. Use the value placed on the improvements that is determined by the lender's appraisal of the real property.

B. A violation of this section shall not affect the validity of the mortgage or deed of trust securing the loan."

Virtual University - Don't Insure for the Mortgage Amount (Regardless of What the Bank Says)
 
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