I will say with honesty that how an insurance company determines how much coverage you are required to carry or how much to charge in premiums is something that I will never understand. I have had numerous situations both before and after I represented insurance companies that insurance adjusters and their supervisors have admitted to me that they don’t understand how these numbers are calculated. It is really a magical formula that the underwriting departments keep a secret and every insurance company may use a slightly different formula. We know this, insurance companies are numbers driven both when determining how much to charge a homeowner and how much to pay a homeowner and they are very good at calculating potential risk. Being good as assuming risks is how they make money. Insurance companies are very good gamblers in other words. Generally I can tell you that they try to evaluate what it would cost to rebuild the home should it be totally destroyed. This will vary based on the size, construction and finishes of the home as well the current construction and materials costs in the market place. I can give this piece of advice, always have more coverage than what you owe on the house. Imagine your house burning down or being swallowed by a sinkhole and you are insured for $100,000 but owe $200,000 on the home. Those insurance benefits may not be all that much help to you. Sinkholes are different than any other insurance claim as the problematic conditions may linger for decades even after repair and may well exceed the policy limits. If a home burns down, it is easy to figure how much it will costs to rebuild it and once it is rebuilt, the case is closed. But the cost to repair sinkhole conditions may be infinite and may never completely repair the problem. If you do not have enough insurance to do repair the house, you should at least make sure you can pay the house off and get out of dodge. The insurance companies might not want to hear that but it is reality.

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