Homeowners/Landlords Insurance replacement costs

Discussion in 'Community Discussion' started by velocityg4, Jun 21, 2012.

  1. velocityg4 macrumors 68040


    Dec 19, 2004
    I was just pondering a question. With the real estate market down so much the replacement costs of homes is far greater than they are selling for in some areas.

    With that in mind say a house costs $200,000 to replace in a total loss but cost only $100,000 to buy. Can you just insure it for say $110,000? Then if there is a total loss. Go ahead and bulldoze it, pay off the mortgage and sell the land as a vacant lot.

    That seems to make more sense to me. If you did have a total loss and got more money than the house was worth. Why would anybody in their right mind have the house rebuilt, have to stay for months in a rental house or lose out on rental income, just to have a house worth less than it cost to build? When they could have paid off the loan, knocked down the house, sold the land (or keep it for an investment) and just bought another house that is nearly paid off for that $200K.

    I'm asking because I've been quoted two rates by different insurance companies on rental property. One only allows insuring based on the estimated replacement cost while the other lets me set any amount at or below replacement cost. As you can imagine the latter is much cheaper. But this made me wonder at the legal aspect. Since laws and logic often do not mix.

    I suppose I should ask a lawyer in my area. This may be something someone here in Georgia has some experience with.
  2. snberk103 macrumors 603

    Oct 22, 2007
    An Island in the Salish Sea
    At a minimum, you need to make sure the insurance amount is at least as much as the mortgage. It would suck to have a total loss, get paid off, and still owe money on a pile of smouldering cinders. :(
  3. senseless macrumors 68000


    Apr 23, 2008
    Pennsylvania, USA
    Good questions. I'm not sure if the insurance company will allow you to take the money and not rebuild, as this could result in a lot more fraud.
  4. iJohnHenry macrumors P6


    Mar 22, 2008
    On tenterhooks
    It would be nice if they would insure your equity, but I doubt that they are very keen on playing the real-estate market.

    Of course, if you insure-to-value, then that is a different matter. But expect high premium, and heavy questioning about your future intent. :eek:

Share This Page