Good morning I’m David Harriman home and auto insurance broker extraordinaire!
A fabulous question I am asked very often is,
“How on Earth is my house only insured for $400,000 but I just paid $700,000 for it?”
The answer’s easy.
Your home insurance company doesn’t care what the value of your home is because if it burns down they’re not buying that house from you.
They are paying to rebuild on that existing piece of land.
So the easiest example to use would be if you buy a house in Los Angeles
it’s not uncommon, if you’re buying a small home,
that the Reconstruction cost on it might only be $400,000 but you just paid $1,000,000 for the house.
Because you’re not paying for the structure…
…Well, you are, but that’s a smaller portion of the cost…
what you’re really buying is that piece of land.
So, wonderful question. If you have other great questions,
or terrible ones I’ll answer those too,
feel free to let me know.
Thank you so much and have a wonderful day.