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B7-3-03, Determining the Amount of Required Property Insurance Coverage (12/15/2021)

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 (UPB) of the loan.
1A

If the insurable value of the improvements is less than the UPB, the insurable value is the amount of coverage required.

1B

If the UPB of the 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 UPB of the loan, the UPB is the amount of coverage required.

2B

If the result of this calculation is greater than the UPB of the loan, this calculated figure is the amount of coverage required.

Note: Loan amount is used at the time of loan origination and UPB is used during servicing of the loan.

Examples:

Category Property A Property B Property C
Insurable Value $90,000 $100,000 $100,000
UPB $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


Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2021-11 December 15, 2021
Announcement SEL-2014–10 July 29, 2014

 

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