Insurance - To lower home insurance premiums...

Our home insurance premiums have gone up along with the rest of yours. I mainly think of this policy as something to be used for a catastrophe, such as a fire. I would only use it to repair major damage or to rebuild. I keep our deductible high and don't plan on submitting small claims.

The price of homes in our neighborhood has gone up (fortunately). I expect that most of the price of a home is for the structure itself, which is at risk in a fire. The worst case scenario would involve a total loss in a fire, and what we'd really need would be the rebuilding cost. However, part of that home price reflects the desirability of the neighborhood, and also the land that the home sits on. These wouldn't change if the house burned down.

So I wonder: Is it really necessary to insure a home for it's full sale price? Why not deduct the price of the land (it's estimated on our tax documents) from the insured amount?

Also, rising home prices (at least in an established neighborhood) don't seem to reflect building cost, but merely what people are willing to pay to live in a given neighborhood. So is it really necessary to increase the insured amount periodically as home prices rise? I know that manufacturing costs rise over time, but I doubt that they shift as much as home prices do.

Just a few thoughts.

I would insure for full sales price and then some. What if you bought a house for 200K put down 20% or 40K then it burned down just a month later? YOur out 40K plus! Home prices are rising fast and so are construction cost too prob not as fast as prices but are increasing pretty good.

Example you but a house again for 200K with 40K down. You don't increase your coverage for many years, say 10 or more. In many areas homes have double in price in 10 yrs and many have at least risen by 20% over 10 yrs. Again, you loose your house to a fire, you will loose every penny you put into that house and then some. If you had kept insurance up with the housing industry trends then it would had been insured for much much more, and instead of loosing your pants off you would have few hundred thousand for rebuilding.

To play this out:

If I bought a house for $200K, assume that the land itself is worth $30K. I insure the house for $170K.

If it burns to the ground a few months later, I should get $170K from the insurance company. I could turn around and sell the empty lot for $30K, or rebuild on it with the insurance money. If the home prices reflect building costs, then the $170K should be enough, right?

I propose that in areas where home prices are rising fast, they probably exceed building costs. So what's to lose (in this scenario) by insuring for less than $200K?

You are right - land is land and that value should be excluded from your homeowners coverage. If the land is worth $30k, then insure up to $170k. Increasing homeowners rates are largely due to price appreciation. Each year when your policy renews an actuary revalues your home. If the actuary determines your home value went up $20k during the year, then your new insurance quote should be $20k higher, hence your premium increases.

Shop around for the best rates. And make sure the policy covers "replacement cost".

This could be a stupid question but looking over the MLS list info:
a house market for $299.9K

LNDASMT: $57,000
BLDASMT: $84,700
TOTASMT: $141,700

how much the land costs??

You really only need to insure the "reconstruction costs" on your home. That is all you are insuring. If your home burns down, your insurance company will only pay for the cost of rebuilding it to its origional state.

So if you have a home that is insured for $300k, but only costs $200k to rebuild, the $200k is all you will get. Why pay more premiums for the extra $100k that you are not entitled to?

My personal policy has an automatic 25% additional coverage for increased labor/material/landscaping and other unforseen costs.

shouldn't coverage exclude the cost of the land AND the profit margin instead of the sale price?

my lender required my insurance agent to come up with a policy that has coverage equal to the sale price. how can i convince my lender to just use the replacement cost instead of the total sale price?

thanks.

It's quite common for lenders to require coverage for the full sale price on new financing. (It's just one of those frustrating quirks in the industry.) You can usually change your coverage at your first annual renewal without any problem. Have your insurance agent take another look at the reconstruction costs of the dwelling and submit the change. It most likely will go through without any problems.

I would also suggest looking at the personal liability portion of the policy and make sure you have at least $300k in coverage. Mine is at $500k and it only costs $4/year more.

Many people also don't realize there is limited coverage for jewelry/guns/art etc. There are "rider" options in many policies that can cover these at very reasonable prices.