I received a call from an insured today.  Apparently, they received a letter from their mortgage company requesting that their home insurance policy be reviewed to determine if it is underinsured.

It’s a sad day when the banking industry is dictating to insurance companies and insured’s the replacement cost for homes and to review their policies with their agent.  

When we quote insurance for a home policy we ask many questions that determine the replacement cost.  We do not insure land.  We insure the property that is built on the land.  The land has no insurance value.  There is also an inflation guard that increases the dwelling amount annually to keep up with building costs.

In the case of the insured who called, his policy had an endorsement to increase the dwelling amount by 50%. 

Needless to say, the insured is adequately covered if a total loss occurred for replacement cost.

Now, I told the insured, we would only have to make changes and do a new replacement cost estimation if and only if he had made some improvements to the home.  The insured had not made any improvements.

The bank or mortgage company is sending out these letters and the insure’s are panicking and calling their agents for no good reason.

A good agent is looking at and reviewing home policies annually to make sure they are covered to 100% replacement cost.  It’s the agents responsibility to call the insured for review and ask if there has been any improvements or changes that would affect coverage and replacement costs.

If your agent is not doing this, well, the red flag goes up.

If you receive one of these letters from your lender, take out your policy and review it.  If you have further questions call your agent.

As always, if you have any questions contact your agent or this author.