Home Insurance Dwelling (A) coverage less than purchase price

Hello, I am in the process of purchasing a home, I’ve been shopping around a lot for insurance as rates are much higher than expected.

I found a great rate with a well known insurance agency, but the Dwelling coverage to rebuild the home is only ~89% of the sale price of the home at closing. The home is older (1930’s), so the insurance company said they use a different algorithm to determine the coverage due to the property’s age.

It’s worth mentioning that I will be putting 20% down on the home, so the dwelling coverage will be more than my mortgage, but looking to know if I’m taking on extra risk here by not having coverage of at least my home’s sale price.

There is also an additional structure on the property, my other structure coverage is about 9% of the total purchase price, so A and B coverages combined are ~98% of the purchase price of the home.

I figure I’ll hold this policy until closing which is quickly approaching, but should I be biting the bullet and accepting a (much) higher premium for more coverage? Most of the quotes I’ve received are between 20-60% higher than the premium for this policy, even with higher wind/hail deductibles than this current policy.

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  1. Hi, the covg A amount has nothing to do with the real estate value, it’s about removing debris and rebuilding your house where it stands.

    The insurance company should do an inspection to verify this is accurate.

    Look into the guaranteed replacement cost endorsement. Most carriers offer 150% of covg a, or 125% of coverage A. I’ve seen 200% of covg a

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  3. Is it an HO-3 or HO-8 policy?

    HO-8s are specifically for older homes that need special material to rebuild/restore, and when I sold HO-3 (regular home insurance) and HO-8, you’d see this come up often IF the home was “historic”.

    BUT, and here’s the bigger thing: Replacement Cost =/= Market Value/Purchase price. The latter is subject to change based on sales volume and buyer/seller emotions, and the former is an insurer’s assumption on what materials are needed to rebuild AND what construction typically costs. They could be the same, but often the Replacement Cost was the lower value by thousands.

    Many times, I’d have to redo the 360 Value (or equivalent) if the valuation for replacement missed things – finished basement, closets, hardwood vs laminate vs carpet, etc – and the Replacement Cost would go higher, but I don’t remember ever getting it to equal the sale price.

  4. I would ask to see the rebuild estimate and make sure it’s accurate. I would also confirm the settlement method. Is it functional replacement with modern materials and methods or full replacement of what you actually have. Ask yourself what you want to have happen in a loss. Protecting the bank is easy, making sure you are covered is a different thing. While you are at it check your roof settlement option, and your liability and medical coverage. Make sure you don’t have gaps that could create issues down the line.

  5. Well, you’re not rebuilding the land so the land cost is not included. The cost to rebuild your home is way less than the retail cost to buy the home

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