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Homeowner Insurance Question

Old 03-07-2009, 01:08 PM
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Was just thinking (don't even go there ) about the cost of homeowner's insurance -- isn't it based on the value of the home, not the land, but the house sitting on the land? If home values are dropping, shouldn't the cost of homeowner's insurance also drop proportionally? Or does it not work that way? ;?
Old 03-07-2009, 01:42 PM
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IMO your insurance should cover the cost of rebuilding and replacing the contents minus foundation and site work work costs. Of course the land should not be in the numbers.

Home values may drop but rebuilding costs should stay mostly the same. Also, in most areas the home looses value over time but land costs rise. It all boils down to what amount of risk you're willing to take. I personally prefer replacement cost policies.
Old 03-07-2009, 01:44 PM
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As far as home insurance, you are right; it is based on the value of the home, but also the location (e.g. probability of loss, such as along the coast; hurricane zones, etc.)

But don't hold your breath! Does the insurance company lower your boat and car insurance every year? With few exceptions, they go down in value every year, too.
Old 03-07-2009, 01:45 PM
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Originally Posted by Eyeball View Post
Was just thinking (don't even go there ) about the cost of homeowner's insurance -- isn't it based on the value of the home, not the land, but the house sitting on the land? If home values are dropping, shouldn't the cost of homeowner's insurance also drop proportionally? Or does it not work that way? ;?
Doesn't work that way. It's always been a problem explaining it and it's getting worse lately with the drop in values. The typical homeowners policy covers the house for replacement cost. Not ACV or market value. (Unless you choose not to re-build and then it goes back to ACV). It doesn't include the land.

We have also had problems on the opposite end. $200K lake house (replacement cost) sitting on $200K lot. Borrow 80% and the banks wanted us to put $320K on a house you could replace for $200K.
Old 03-07-2009, 04:59 PM
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I am going to ask a dumb question, but why do you need insurance for the land?
Old 03-07-2009, 05:09 PM
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Originally Posted by kingair View Post
I am going to ask a dumb question, but why do you need insurance for the land?

In case somebody steals it?

Right in the middle of this one right now. Just signed purchase agreement for a 2nd home last Sunday. House sits on 3 acres of land. How much of the value is house and how much is land? Why pay insurance based on purchase price when a significant portion of the purchase price is for the land?

My guess would be that the only insurance you need on the land itself might be liability. If I shoot a thief and he dies on my land I want to be covered!
Old 03-07-2009, 05:14 PM
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You dont need ins for the land but the bank requires you to have ins on the amount of the loan in most cases. Insurance is probably going up next year because ins companies depend on stock investments as part of their business plan.
Old 03-08-2009, 07:25 AM
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Insurance rates are established according to the location. My house in Pascagoula, Ms. is near the Gulf and the Pascagoula River. The mortgage is $300.00/month and the insurance is $500.00/month. The home is only worth about $100,000.00. The insurance companies are attempting to recoup their losses from Katrina.
Anyone interested in buying a small home?
Old 03-08-2009, 07:31 AM
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It should be based on the REPLACEMENT cost of the improvements. They usually add 50-100% for contents, and other expenses such as lodging, demolition, etc.

The drop in real estate values is due more to the value of the LAND than the value of the improvements. While building costs may have dropped slightly, land values have tanked in many areas.
Old 03-08-2009, 12:30 PM
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Originally Posted by billinstuart View Post
... While building costs may have dropped slightly, land values have tanked in many areas.

Heard on the radio a couple nights ago the median price of a home in Detroit is now $18,000.00 -- $18k!!!
Old 03-08-2009, 02:48 PM
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Originally Posted by Eyeball View Post
Heard on the radio a couple nights ago the median price of a home in Detroit is now $18,000.00 -- $18k!!!
HOLY SHIT!!! My garage cost near tripple that.
Old 03-08-2009, 03:28 PM
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Applying the same line of thinking, shouldn't your property taxes also be reduced to reflect the lower value of your home and/or property? ;?

(If you really think THAT'S gonna happen, I regret to inform you that you are seriously delusional!)

Old 03-08-2009, 05:33 PM
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Isnt homeowners insurance also for liability. So if you have more land, there is a greater chance someone could get hurt on your property.
Old 03-08-2009, 05:50 PM
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Originally Posted by PostOpus View Post
Applying the same line of thinking, shouldn't your property taxes also be reduced to reflect the lower value of your home and/or property? ;?

(If you really think THAT'S gonna happen, I regret to inform you that you are seriously delusional!)

Well, it happens in California. We can request the taxman to re-value our property and reset the tax appropriately. There is a form in every county office to have it done. I think they try to do it once a year for those folks that request it, not sure if someone can have it done whenever. Anyways, it is all tied to the evil Prop 13 that same many homeowner's home from the taxman.
Old 03-08-2009, 06:23 PM
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Originally Posted by Eyeball View Post
Heard on the radio a couple nights ago the median price of a home in Detroit is now $18,000.00 -- $18k!!!
heh..would you want to live there?
Old 03-08-2009, 06:27 PM
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Living near the coast, my insurance cost varies yearly, and is seemingly based nationwide insurance losses in the last few years. My insurance recently went down About $100/year..after going up about $400/year after Katrina.

It's ben 20 years this year since we had a major hurricane, so we are due. If we have one, I doubt my house will make it. And if it doesn't, I'm cashing out and renting for a while.
Old 03-09-2009, 11:40 AM
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Originally Posted by Eyeball View Post
Well, it happens in California. We can request the taxman to re-value our property and reset the tax appropriately. There is a form in every county office to have it done. I think they try to do it once a year for those folks that request it, not sure if someone can have it done whenever.
All well and good, but has anyone actually had their tax bill reduced as a result? ;?
Old 03-09-2009, 12:07 PM
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Most of the time the mortgage co will require the customer to either have full replacement on the home or insure it for around the loan amount. Most insurance co's have done away with full replacement cost and have a cap like 20% over the amount its insured for at the time of loss. So with limited replacement for a home like that if you had a home insured for $200,000 then the max pay out for the dwelling would be $240,000. Most of the time an agent can call the closer and they will allow them to write the insurance for the apraisal minus the value they have for the land. They actually passed a law some years back telling the mortgage co. they cannot make the customer insure for full value (home +land) if they have full replacement cost on the dwelling.
Old 03-09-2009, 12:11 PM
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Originally Posted by CaptWill View Post
As far as home insurance, you are right; it is based on the value of the home, but also the location (e.g. probability of loss, such as along the coast; hurricane zones, etc.)

But don't hold your breath! Does the insurance company lower your boat and car insurance every year? With few exceptions, they go down in value every year, too.
What you need to remember that the only time the value of a car or boat is figured is if its a total loss. Most losses are not total losses so that really does not have a big impact on premiums. It does if your talking about a big swing in value like an old car worth $5,000 to a $40,000 car.

Last edited by fishingfun; 03-09-2009 at 12:16 PM.
Old 03-09-2009, 12:56 PM
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Rates are based upon reconstruction costs - not valuations to determine tax. A POS house may be rated very high because to rebuild it under current code will likely be substantially more than it cost to build it originally. This is particularly true for older structures where hurricane standards were adopted subsequent to the original construction.

Insurance for the land could be as simple as liability protection for when I stub my toe on your property and you hadn't repaired the crack in your sidewalk. You can help yourself on unimproved property by posting the appropriate no trespassing signage that complies with local and state law.

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