Q2. Should I insure my home for the purchase price or loan amount?

December 11, 2017

Answer:
The simple answer is NO. The purpose of insurance is to be able to rebuild your home after a loss. Presumably, if a similar home is built on the same lot, you will be made “whole” again. Therefore, the amount of insurance on the policy should reflect the actual cost to build a similar home on the same lot. The purchase price is driven primarily by market value and considers where the home is located. For example, a home in Santa Clarita will have a very different market value that the same home in Beverly Hills. Similarly, the loan amounts can vary greatly by the market value and your down payment. However, the cost of materials and labor to rebuild the same home is either location would be relatively similar.

Last modified: December 11, 2017

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