Insurance - Why can't I exclude the value of land?

I am located in South Florida so I have to carry Home Owner's insurance, Windstorm insurance and flood insurance. For each of those I have to insure the full amount of the home's valuation.

If my home is worth say 400K and let's say the land value is 150K and the structure is 250K why must I insure the full 400K? If the home gets destroyed by a hurricane the land is still going to be there so I do not understand why the insurance must be for the full amount structure + land. This is the case for HOI, and Flood and Wind.

Another question I have is the insurance for the content of the home. I currently insures the content at 50% of the home value which amounts to 200K. But I did a little inventory I don't really have 100K of content. I asked the agent how much I would save if I were to reduce the home content insured from 200K to 100K, and he told me that if I were to reduce the home content to NOTHING, $0, that it would only reduce my insurance by $130.00. Yes, out of the $4000 premium I pay now, it will only be $130 cheaper if I totally drop off the home content part of the HO insurance. This amount seem unreasonable to me but there is no itemized breakdown of the policy so I couldn't tell, is it possible the agent is playing games with me?

I'm not an insurance pro, but my take on what you posted would say they are simply applying the same methods to all. If they use full value, land and building for everyone, then the rate per thousand is lower. If they chose to use house value only, then the rate per thousand would be higher. If you had 5 million in property and a $250,000 home, then an adjustment would be in order. But if your ratio of land value to house value is typical, they are correct.

As for contents, it is usually not much of an addition, so taking it off would not save a lot. I would however check to see if they are listing the contents as replacement cost. Usually not a lot extra and a much better coverage.

If you haven't asked about the land value, do so, as my home insurance is just for the replacement cost of the building. But I would not be surprised if they use the full value, it makes their job easier.

Bud

Thanks for the reply.

I think there are several factors in play here. One is that the financing institutions may have their own rules in terms of what is acceptable to them in terms of coverage. But lets take that part of the equation out at the moment.

The reason I am inquiring is because I own two homes now, and between flood, wind only and HOI, I am paying for six policies at very high premiums compared to the rest of the country due to being in high risk hurricane zone. So a total of six policies if each one of them I am paying to insure the land which will never go away even if my house is burned down or blown away, it seems that is one area I could save if indeed I am paying to insure nothing.

I have recently added hurricane shutters and straps to my house and that entitles me to earm some credits to the premium for being in a relatively "safer" home.

I really have no idea how to value the land portion of my property. I have only two sources to go by, one is the county appraiser website does have a break down of the land and improvement valuations, and also when the houses were purchased years ago it was appraised as a requirement for loan and it also has a land vs improvement breakdown. So if I use those as a guideline in terms of percentages, then my land is worth about 42% of my property's total worth, and I guess I am paying premium to each of the three companies to insure that 42% will not be blown away, stolen, vandelized, flooded, or burned down.

The replacement cost angle you raised is a good question. I don't know. If I would have to guess, it would cost more to build today than what the structure is valued at. Is that why they value the entire property? Is to assume the replacement cost of the structure will be higher, but not to exceed the amount you can just buy another at?

The replacement cost angle you raised is a good question. I don't know. If I would have to guess, it would cost more to build today than what the structure is valued at. Is that why they value the entire property? Is to assume the replacement cost of the structure will be higher, but not to exceed the amount you can just buy another at?

No, the replacement cost issue I was suggesting is for contents. A 10 year old, $2,000 couch would be depreciated to nothing, so your $200,000 in content coverage, covers nothing. With replacement coverage, you get a new $3,000 couch, an equivalent replacement at the appreciated prices.

For your house, you never want to slip below 100% coverage or the bean counters will get you again. Insuring a $100,000 home for $80,000 would mean you get paid 80% of any claim, no the full loss up to $80,000.

Now, you missed my point on them using the combined values, or I explained it poorly. If they use that process for everyone, then their rate per thousand is lower due to the total higher evaluations and it would be unfair to remove the land from one home owners policy without removing it from all. You simply need to ask, in case that option is available. In some places in Florida the land can disappear. You are only paying a premium if you are the only one paying for land value plus house. If everyone is paying for the combined value, then the companies rates are simply lower. I'm repeating myself to try to be clearer. Think of property taxes at 80% evaluation. The town moves to 100% and everyones taxes remain the same, why, because the rates were adjusted down.

How am I doing?

Bud

OK, we've got a lot of stuff going on here so let me try to put together an email that addresses all the issues but isn't so lengthy no one will read it.

First, let me say that I am an agent in KY, and have no experience in FL. Insurance law is regulated by the state, so what they do in KY is not necessarily what they do in FL. What I am giving you is my opinion based on KY laws.

OK, here we go...

You say your property is worth $400k ($150k land + $250k house), but that is probably market value, not replacement cost value.

Market Value - The value a piece of property would bring in the market, if you had a willing buyer and you were a willing seller. This is the amount you buy or sell your home for.

Replacement Cost Value - The amount of money it would take to replace everything in the event of a total loss.

Market Value does not (usually) equal Replacemnt Cost Value.

Reasons that MV and RCV don't equal are like what you said...even if a hurricane came through and wiped out everything or even if a fire came and completely incinerated everything, you still have land that has value. That land value is included in MV, but not RCV. So, if you had a small house on a lot of land, you would have a very valuable property (high MV), but not much RCV.

On the other hand, when you have an ornate house or other type of expensive building material, sometimes that isn't reflected in the purchase price. For instance, our small town has several old mansions that were built in the 1800's. If they were to be rebuilt today, the price tag would be $1,000,000 or more. However, since I live in a small town, the market for $1M mansions is pretty slim. Owners are not able to sell their houses for what they are "worth". So, market value is lower than RCV in this instance.

So, back to you...

You say that your house is only worth $250k, but I would bet that is MV and not RCV. I bet that the $400k insurable amount is actually the RCV for the home.

I can't help you on the flood policies. Flood policies are complicated, and administered by the US Government. All of the flood policies that we have written have been for far less than the RCV. Usually our flood policies are just for $20k-$30k for a home your size. I don't even believe you can get coverage for the full RCV. However, KY may be different from FL since we are not a coastal state. Our floods generally don't destroy the entire home.

Regarding the contents coverage... Generally contents coverage is a throw in coverage. Usually it is a percentage of the RCV, and usually the companies won't let you reduce it.

The bottom line is you need to talk to the agent. Ask him why you have to insure it for the $400k. Tell him you think it is only worth $250k and ask how he arrived at the $400k. What he will probably tell you is that he has a computer program that estimates the RCV, and that is how they arrived at $400k.