Nov. 4, 2007

I want to buy a homeowners policy on the dwelling I just purchased. My insurance company refuses to insure the property for less than its figure for replacement costs. I believe their figure is too high. Can they do this?

Don, Texas

Dear Don,

Yes, they can. Gary Julian, a regulator with the Texas Department of Insurance, says that home insurers are starting to require policyholders to go with full replacement value, and there's no reason why they can't do this.

Julian points out that you can negotiate a bit with the company on this. You can get a local contractor's estimate on rebuilding your home and use it to back up your contention that the company is overinsuring you.

However, Julian notes that people often mistake "market value" for the amount at which they should be insuring their home. "If you have a home that has a taxable value of $70,000, and it's a 2,000-square-foot home that will cost $45 per square foot to rebuild, you'll need to insure it for $90,000, not $70,000," explains Julian.

Don't forget, there are other fish in the sea.

Back to the Forum

Disclaimer: We are journalists, not financial planners or insurance brokers. Nothing we say should be interpreted as a recommendation to buy or sell any insurance product, or to provide other financial or legal advice.