I’m referring to forcing you to buy replacement value on a home or business property instead of giving you an option to get insurance only on purchase price.
I had a building I wanted to buy today. It’s 35,000 s.f… It’s on the tax roles for $313,000. But it’s recession priced at $99,000. It’s a solid metal building with concrete floors. It would be great for another small manufacturing type company. I told the bank I wanted to put the minimum down, and they said I could go as little as 15%.
So on to the insurance company I went. I requested insurance on the $99,000, not replacement value. My insurance agent checked with all that the insurance companies they do business with, and none would do it. The one that would insure it said they wanted to put the replacement value at $700,000.00, and would insure it for 80% of that value, or about $560,000.00. Also, since it is not occupied, they would also put me in a higher bracket for it too.
My monthly payments on the insurance would be about the same or a bit higher than the bank payments. Is it any wonder why many home and business owners decide to burn 'em down?
Does anybody know of an insurance company that will insure it for purchase price?
It could be a state law. In Wisconsin, IIRC from when I purchased my house, my insurance agent and the loan officer got into an argument over what to insure my house for. The banker wanted the insurance to be for the loan amount (more then the replacement cost of the house), while the insurance agent insisted, according to WI law, it only needed to be for the replacement value. My insurance agent said he has the argument on a regular basis with bankers and always wins since he has the law on his side.
I don’t know the law regarding this at all, I’m just going by what I can recall the insurance agent saying when I bought my house 6 years ago. Also, I’m not sure what the law says when the replacement value is that much higher then the loan amount.
ISTM you should be able to, in theory, insure it for whatever the lower amount is. If the loan amount is lower and the place burns down, you can use the insurance money to pay off the bank note. If the replacement value is lower, you can use the money to rebuild a new place and transfer your note to the new building.
Thanks for sharing. I should have pointed out I’m in Texas, and from what others have told me, we tend to have to pay higher on house and business insurance than other states.
I went though this before with other homes, and also on my exiting business. They do this all the time. I’d love to insure for purchase price, but I have yet to find an insurance company that would do that.
I’ve even seen ghetto houses that people have purchased for $10,000, but insurance companies insist on insuring for replacement value of $50,000+.
No, insurance companies will not insure property for less than it’s worth. A $100,000 (replacement cost) property for which you pay $50,000 suffers a $50,000 loss if only half of it burns down. A $50,000 (replacement cost) property suffers a $50,000 loss only if the entire building burns down. You cannot insure against the former for the price of the latter.