Loan Amount vs. Insured Amount: What Kind of Coverage Do You Need?

Insurance is a protective measure that safeguards you against permanent loss when a negative event occurs. This is why it is so important to insure your home as well as the balance of your home loan so that you aren’t stuck with the cost of rebuilding and maintaining the loan payments. 

Loan Versus Insured Amount

“Loan amount” refers to how much you borrowed to buy the property, but it doesn’t always represent the amount you have to repay. The amount owing often includes points, loan fees, closing costs, and any other expenses related to the purchase. A loan amount can be substantially different from an “insured amount,” which is the total coverage you have taken out on the property.

If you took out a mortgage of $300,000, your home insurance policy may only provide you with the replacement or cash value of the property if you ever have to make a claim. A replacement value policy covers the cost of replacing your home if destroyed, but the money you receive may be less than your loan amount. With a cash value policy, you get the current market value for everything.

If a hurricane destroys the property and the cost to replace it is $200,000, a replacement value policy will leave you with a deficit of $100,000. On the other hand, if your home is worth $250,000 at the time of the incident, a cash value policy will leave a $50,000 gap between the amount of your mortgage and your insured amount. 

Depending on your present financial circumstances, it may make sense to take out insurance that protects the full loan amount and repays the balance owed if you ever have to make a claim. When you apply for a mortgage, you may even be required to obtain coverage for the full amount of the loan so that you and the lender are both protected from financial loss if a catastrophic event occurs.

Get Experienced Advice 

The secret to buying insurance is getting the right amount of coverage for the property. If you’re facing an insurance issue, it’s essential to have an experienced lawyer to guide you through the process. Contact Barnard Law Offices at (305) 665-0000 to learn more.

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Barnard Law Offices

The Barnard Law Offices, L.P. has been protecting the rights of Floridians for four generations. Together our attorneys bring years of insurance claim advocacy and trial experience to the table. We don’t believe in half-hearted measures when it comes to proving your claim: after inspecting the damage to your property, our office will engage or connect you with high-quality third-party professionals to assist you with your claim and assess your property damage. Our talented team is dedicated to serving each client’s needs with a passion and commitment that makes us stand out among our peers.

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