Introduction
This topic contains information on determining the amount of required property insurance coverage for a property on which an individually held insurance policy is maintained.
Determining the Amount of Required Property Insurance
The following table describes how to calculate the amount of required property insurance coverage:
| Step | Description |
|---|---|
| 1 | Compare the insurable value of the improvements as established by the property insurer to the unpaid principal balance of the mortgage loan. |
| 1A |
If the insurable value of the improvements is less than the unpaid principal balance, the insurable value is the amount of coverage required. |
| 1B |
If the unpaid principal balance of the mortgage loan is less than the insurable value of the improvements, go to Step 2. |
| 2 | Calculate 80% of the insurable value of the improvements. |
| 2A |
If the result of this calculation is equal to or less than the unpaid principal balance of the mortgage, the unpaid principal balance is the amount of coverage required. |
| 2B |
If the result of this calculation is greater than the unpaid principal balance of the mortgage, this calculated figure is the amount of coverage required. |
Examples:
| Category | Property A | Property B | Property C |
|---|---|---|---|
| Insurable Value | $90,000 | $100,000 | $100,000 |
| Unpaid Principal Balance | $95,000 | $ 90,000 | $ 75,000 |
| 80% Insurable Value | — | $ 80,000 | $ 80,000 |
| Required Coverage | $90,000 | $ 90,000 | $ 80,000 |
| Calculation Method | Step 1A | Step 2A | Step 2B |