Does Utah have an Over Insurance Law?

The answer is no, Utah like Idaho and a few other states does not have an over-insurance statute, yet. A Utah Over Insurance statute has not been necessary because many states already have Over Insurance statutes and the mortgage companies who enforce the rules will paint most of the country with the same brush, it’s easier for them to conduct business that way so even though Utah does not have this statute, the mortgage companies will recognize and treat us like other states that do.

What is an Over-Insurance statute anyway? Over Insurance is when a bank or mortgage company requires a homeowner or owner of a commercial property to insure for the loan amount even thought the loan amount may exceed the replacement cost of the property and sometimes by a significant amount. You are basically paying for insurance that you will never use. This comes into play more often with smaller homes in expensive areas where the value of the land drives up the overall cost of the home.

Since mortgage companies can no longer require homeowners to insure their homes for the full loan amount they have started to require that insurance companies provide an RCE – Replacement Cost Estimator to show that the home has sufficient coverage. This has also been deemed illegal in several states and it is something that the insurance companies are not excited about providing and for good reason. Often times an RCE is completed by a staff member who probably does not know much about construction. For an RCE to be 100% accurate you really would need to get a full bid from an contractor. That’s just not feasible so companies will rely on computer created RCE’s to get as close as they can. As you can imagine, there is a lot of room for error in an RCE which makes companies uncomfortable with sharing them.

An example of this arose recently when we insured one of the best Mexican Restaurants in Salt Lake. This very successful restaurant purchased a new building and existing restaurant for $2,500,000 and the replacement cost of the building was $1,500,000. The bank could have required them to insure the building for $2,500,000 to cover their $2,500,000 loan amount which would have meant $1,000,000 in unnecessary coverage and insurance cost for our client. We were able to get a Guaranteed Building Replacement endorsement from the insurance company and insure the building for $1,500,000 and convince the bank that was sufficient, otherwise the bank could have required much more coverage.

You can find more information about our neighboring states statues by searching these file numbers:

Arizona statute 6-900 and 44-1208; Colorado statute C.R.S. 10-4-114.

Anderson Insurance Group is encouraging the Utah State Legislature to introduce a statute at the next legislative session to protect insurance companies, agencies and to prevent insurance companies from overcharging for property insurance coverage.

Call Anderson Insurance Group Utah for more information and how to insure your home or commercial building for a competitive price without sacrificing the coverage you need.

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