27 March 2013
Unnecessary Cost of Replacement Value Insurance
Homeowners are often forced, by their mortgage banks, to insure their homes against total loss evaluated at the replacement cost of the property. The reasons for this requirement may be a combination of factors, including the value placed on the home by the mortgagor so that it can recover its own loss, the higher premiums paid by the homeowner on an expensive policy issued by the insurer, and the evaluation of the assets held by the homeowner which can be dominated by the value of a residence that was built with high standards of craftsmanship in an earlier era.
What is the homeowner really insuring? It may be that he owns the home outright, in which case there is no mortgage. Then the insurance company is protecting the homeowner for the possibility that he will lose whatever value he places on his residence, whether or not it is the identical replacement of the structure and all its features. He may wish to protect himself only against the loss of a suitable place to live, regardless of the unique characteristics of his current home.
Of course, third parties may also have an interest in how a totally destroyed home is replaced. Its substitution with a less-expensive though perfectly livable house may reduce the value of surrounding properties. The requirement identically to replace a damaged home will affect its purchase price should that be a matter of law.
There clearly are a variety of considerations that have to be taken into account when acquiring a home beyond just putting a roof over one’s head. Good citizenship can be expensive, and cash flow is not the only factor determining fairness of insurance rules and regulations to the interests of the homeowner. The revenue stream earned by insurance companies may finance, however, their considerable lobbying efforts and political contributions to supportive legislators in state governments.
Homeowners are often forced, by their mortgage banks, to insure their homes against total loss evaluated at the replacement cost of the property. The reasons for this requirement may be a combination of factors, including the value placed on the home by the mortgagor so that it can recover its own loss, the higher premiums paid by the homeowner on an expensive policy issued by the insurer, and the evaluation of the assets held by the homeowner which can be dominated by the value of a residence that was built with high standards of craftsmanship in an earlier era.
What is the homeowner really insuring? It may be that he owns the home outright, in which case there is no mortgage. Then the insurance company is protecting the homeowner for the possibility that he will lose whatever value he places on his residence, whether or not it is the identical replacement of the structure and all its features. He may wish to protect himself only against the loss of a suitable place to live, regardless of the unique characteristics of his current home.
Of course, third parties may also have an interest in how a totally destroyed home is replaced. Its substitution with a less-expensive though perfectly livable house may reduce the value of surrounding properties. The requirement identically to replace a damaged home will affect its purchase price should that be a matter of law.
There clearly are a variety of considerations that have to be taken into account when acquiring a home beyond just putting a roof over one’s head. Good citizenship can be expensive, and cash flow is not the only factor determining fairness of insurance rules and regulations to the interests of the homeowner. The revenue stream earned by insurance companies may finance, however, their considerable lobbying efforts and political contributions to supportive legislators in state governments.
19 March 2013
What People Should Think About
When Adlai Stevenson told a supporter that you win an election only with a majority of the votes, not with those of “thinking people” alone, he was really prescribing what thinking people should be thinking about. How do you get unthinking people to act in their own self-interest?
Most people do not listen to reasoned argument. They continually put themselves in a worse situation. Moreover, they are easily persuaded to do what brings benefit to the other guy at their own expense. It’s hard to convince them that something can be done that will benefit both the other guy and them. The outcome of any game that isn’t zero-sum seems unnatural. We all benefit when we all pitch in; this principle is equally true when it comes to tax policy, affirmative action, immigration, international trade, vaccinations, etc.
Occasionally, Americans wake up to this truth; but inevitably we revert to the law of the jungle that has maintained the status quo (or lost ground to environmental degradation) for millennia. It’s time for the hidden techniques of persuasion and for social networking tools to be used to mobilize public sentiment to accomplish the task of improving the human condition.
When Adlai Stevenson told a supporter that you win an election only with a majority of the votes, not with those of “thinking people” alone, he was really prescribing what thinking people should be thinking about. How do you get unthinking people to act in their own self-interest?
Most people do not listen to reasoned argument. They continually put themselves in a worse situation. Moreover, they are easily persuaded to do what brings benefit to the other guy at their own expense. It’s hard to convince them that something can be done that will benefit both the other guy and them. The outcome of any game that isn’t zero-sum seems unnatural. We all benefit when we all pitch in; this principle is equally true when it comes to tax policy, affirmative action, immigration, international trade, vaccinations, etc.
Occasionally, Americans wake up to this truth; but inevitably we revert to the law of the jungle that has maintained the status quo (or lost ground to environmental degradation) for millennia. It’s time for the hidden techniques of persuasion and for social networking tools to be used to mobilize public sentiment to accomplish the task of improving the human condition.
