Below is an excerpt from 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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